Wealth Planning

Family Office 2.0 : Creating value


Alain E. Roch, MBA

President and CEO

Alain.Roch@bluebridge.caLike Blue Bridge, family offices have become major players in the financial community, often investing alongside pension funds and other institutional investors.

At the outset, family offices were primarily structures that managed the financial affairs of the very wealthy. Today’s family offices create value for their clients and are sophisticated investors and essential business partners when it comes to private investments and M&A transactions.

The variety of family offices has also expanded:  Single-family offices (SFOs), which represent the members of one family, led to the emergence of multi-family offices (MFOs), which represent several clients and are by far more numerous. There are also embedded family offices (EFOs), which are linked to families’ professional and/or commercial activities.

While no minimum amount is required to create a family office, family assets should total at least $300 million, given the costs associated with wealth management (analyst and back office compensation, research tool subscriptions, statutory registrations, audits, etc.), wealth engineering (compensation of professionals, professional insurance, etc.), governance (compliance) and, especially, IT and data protection. Multi-family offices are ideal for family assets below the minimum amount, for clients wishing to take advantage of economies of scale, and for families that want to rely on professionals who are at the forefront of their expertise.

Whatever their form, family offices around the world managed $4 trillion in assets in 2018.

To meet their clientele’s increasingly complex needs, family offices offer a range of services that overlap numerous disciplines, including wealth management, wealth engineering, family governance, philanthropy, etc.

Family offices also provide advisory services related to private investment (angel investment funds, hedge funds, venture capital funds, private equity funds, etc.), and may be directly engaged in M&A transactions.

Increasingly, family offices are investing directly in businesses, partly out of a desire for greater control, reduced fees, and greater returns on invested capital. As a result, they are investing less in funds, particularly hedge funds, which in recent years have not performed well enough to justify their high fees.

According to UBS’s “Global Family Office Report 2018,” nearly half of the family offices surveyed said they intended to make more direct investments in 2019.

Family offices need to have the right resources, including the right legal,  accounting, tax, and other advisers, who understand what it takes to minimize the risks and maximize the value of direct investment opportunities.

Family offices’ investment decisions are based on a unique combination of considerations, including the need to free cash flow for distribution to family members, tax considerations that may include intergenerational tax planning and philanthropic planned gifts, and personal goals that reflect the family’s political, social, and religious predilections. In family offices, these considerations must be viewed and balanced against the competing interests of each family member.

Family offices are generally patient investors. Unlike venture capital and private equity investors that have a four to seven-year time horizon, family offices generally have longer time horizons and are more focused on long-term capital growth.

Family offices that increasingly engage in direct investments are assigning significant roles to the family’s younger generation. These millennials are interested in direct investments in start-ups, including start-ups in new millennium focused businesses in information services, FinTech, including blockchain-related companies, artificial intelligence (AI), artificial reality (AR), and the Internet of Things (IoT). However, because of their need to preserve wealth and desire to achieve long-term value, family offices are also interested in traditional conservative investments in real estate, infrastructure, forests, and farmland.

Millennials managing family offices tend to have greater social awareness and a willingness to make sustainable and impact investments. More than most traditional managers, family offices tend to consider such issues as the environment, poverty, access to education, equality of individuals, etc.

Just like Blue Bridge, true family offices create value for their clients by supporting them in achieving their goals so they can have a positive impact on their family and the world in which we live.

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By ALAIN E. ROCH, MBA

17/03/2021

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