Wk 4 Flashcards
Family Offices and multi- family offices
What is the “Three Circle Model”?
The ‘Three Circle’ model is used to understand and manage the complexities within family businesses. It helps identify and address the overlapping roles and relationships among the family, ownership, and business systems, guiding strategic decisions and resolving potential conflicts that arise from these interactions.
Captures the key dynamics between family, ownership, and business, some experts argue that modern family businesses face new complexities that might not be fully addressed by the original framework such as professional management, governance, and external stakeholders.
What are the implications of this type of asset allocation? Which asset classes have been affected?
The implications of this type of asset allocation, particularly in family offices, often include crowding out effects where certain asset classes are given less attention due to the prioritization of others. Specifically, traditional asset classes such as equities and bonds may be crowded out in favor of alternative investments like private equity or real estate. This shift can impact overall portfolio diversification and risk management.
What is a multi-family office and who works in a family office?
A multi-family office (MFO) is a wealth management firm that serves multiple wealthy families, offering services like investment management, tax planning, and estate planning.* * CEO
* COO
* CIO
* CFO
* CLO/GC
* Portfolio Manager(s)
* Investment analyst (s)
* Trader(s)
* Financial Controller, Accountant, Bookkeeper ?
Name 10 key trends in asset allocation highlighted by Rosplock.
1.Impact of complexity on family offices
2.Structure and strategy drift / updating
3.Risk management (of operating risks rather than financial risks)
4.Multigenerational governance and ‘empowerment’ - do family offices have a
limited shelf life
5.The impact of longevity
6.Public profile and regulation (note this was written before Archegos!)
7.ESG / values / investments
8.Single vs multi-family offices
9.Potential for suboptimal scale
10.Impact of technology
What does Rosplock define as the two greatest drivers of even having a family office in the first place? How does this align with being served by a broader wealth management business - don’t these business have confidentiality and privacy obligations, and an ability to control things?
Complexity of Wealth and Control and Privacy. While broader wealth management businesses do offer confidentiality, privacy, and control, they might not match the bespoke and comprehensive services provided by a family office. Family offices offer a higher degree of customization and integration of services tailored to the specific needs of the family, which can be more challenging to achieve in a broader wealth management context.
- On a spectrum of hedge fund through tonsingle family office - where does a multi-family office sit?
- How many families do you think are part of a multi-family office? Did the figure in the Rosplock text surprise you?
On the spectrum from hedge funds to single-family offices, a multi-family office (MFO) typically sits closer to the single-family office end. MFOs provide many of the personalized services of a single-family office but serve multiple families, allowing them to offer a range of specialized services while sharing resources.
The number of families in a multi-family office can vary, but many MFOs serve between 5 to 20 families. This figure might surprise some, as the exact number can differ significantly depending on the MFO’s size and structure.
Is there a clear boundary between a hedge fund, an investment manager, a single family office and / or a multi-family office ?
There are distinct differences, though sometimes overlapping, between hedge funds, investment managers, single-family offices, and multi-family offices:
Hedge Funds: Primarily focus on high-risk, high-return strategies and are typically open to external investors. They often employ complex investment techniques and leverage.
Investment Managers: Provide asset management services and investment advice to clients, including individuals, institutions, and families. Their focus is generally on managing portfolios across various asset classes, often without the personalized services of family offices.
Single-Family Offices (SFOs): Serve the financial and personal needs of one wealthy family. They offer comprehensive, customized services including investment management, estate planning, and more.
Multi-Family Offices (MFOs): Serve multiple families, providing similar services to SFOs but with shared resources and potentially broader expertise. They offer more personalized services compared to traditional investment managers but may not be as tailored as a single-family office.
Several of the reading materials this week have asserted that there is a ‘crowding out’ of some asset classes as family offices have grown - do you believe this?
There is evidence that as family offices have grown, they have increasingly focused on alternative investments such as private equity, real estate, and hedge funds, which can lead to “crowding out” of traditional asset classes like equities and bonds. This shift can be driven by the search for higher returns and diversification. Whether this is a universal trend may vary based on individual family offices’ strategies and preferences.
Identifying a family office - Is the Crown Estate a family office ?
To identify and understand a family office like the Crown Estate, you would look at its structure, services, and objectives. The Crown Estate is not a family office. It is a sovereign wealth fund managing a $30 billion portfolio of diverse assets, including real estate and natural resources. Established to generate revenue for the UK Treasury, it has no shareholders, does not pay tax, and operates under a 1961 statute. Its profits support national expenses and the Queen’s duties, distinguishing it from a family office, which focuses on managing personal wealth.
What are the strengths, weaknesses, opportunities and threats of a single family office?
S - control, family first privacy, alignment
W - attracting and retaining talent, cost controls, bridging family continuity
O - collaboration, co-investments, first class service, peer-to-perr exchange
T - family conflict, managing scope, controlling costs
What are the strengths, weaknesses, opportunities and threats of a multi-family office?
S - scale, top talent, centralised data management
W - group think, customisation, bureaucracy
O - more for less, learning curve, one-stop shop, sharing costs for speciality services
T - Getting too big to fast, overpromising, talent retention and turnover, ownership and leadership alignment, maintaining close relationships
Three circle model: Is it old, does it need updating? Is there a 4th circle?
watch the video wk 4
