The term ‘family office’ is not widely known, and for good reason. While there is no strict definition, a family office is a wealth management company which invests assets on behalf of wealthy individuals or families. The term is not well known because quite understandably these families don’t need, or want, to advertise the fact that they have money to invest. If they did they would be inundated with requests. There are both single and multi family offices, single are normally run by a family member or appointed CFO who looks after one family’s wealth and multi are run by professionals who serve more than one family.
Family offices tend to be so discreet they are only really contactable through highly selective referrals and trusted networks. As one executive said at a family office conference in Dubai last year, “we’re the most important part of the investment landscape most people have never heard of”.
And not only do family offices discreetly manage the family’s investments, they manage all the financial affairs of a family such as staff wages, accounting and tax planning, property and estate management and succession planning – while running businesses and making investments generates wealth, without proper financial planning and succession planning, preserving wealth is very challenging. Therefore family offices do everything it takes to generate and manage wealth to ensure it will be passed safely down from generation to generation.
Now, not every wealthy family has a family office, but those that do often choose to have one to avoid having to pay someone else to manage and invest their money, thereby increasing their margins. It also allows them to invest without the sector and time constraints that traditional VC firms have, usually trying to exit in 5 years or less. Because of the emphasis on passing wealth down through the generations, family offices tend to make long-term investments which is why real estate often makes up a significant part of family office portfolios.
How do you find family offices for investment?
For those seeking investment from family offices, you will have to work hard to find them, let alone get in contact. Finding family offices is really a case of networking and receiving personal introductions. Without already knowing the right people finding a credible person, such as a capital raiser, to introduce you to family offices is a good way of starting. There are also several family office conferences each year which can provide a ‘way in’ however I am aware of several families who tend to avoid conferences, particularly those where start-ups pay a fee to present in front of investors.
When seeking family offices for funding, to avoid wasting your and their time, it’s important to ensure that your business aligns with the family office’s investment criteria and philosophy. Many tend to invest in companies that directly or indirectly relate to the core business upon which their success is built. Also unlike VCs, who are often brutally focused on the figures, family offices value having good chemistry with the person they are funding. Therefore after having received an introduction, getting along with the family office decision makers, usually the investment manager and family patriarch, is essential to receiving their backing.
From my knowledge of family offices, however, all the hard work it takes to be introduced is worth it. Family offices make great investors for entrepreneurs because of their focus on relationships. Of course they want to see a return on their investment but because they take a long-term approach they tend to have more patience than institutional and private equity investors while also serving as experienced mentors with excellent connections.
For more of my insights into the world of family wealth visit Fiducia Partners insights.