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Family Office
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Michael Baer,
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Keeping it in the Family

There are as many organizational variations of family offices as there are families, their respective needs, wants and preferences. Whatever form the organization assumes, it should be always able to draw its inspiration, identity and vitality from the family it serves. It is, after all, the family’s office.

A family office is an organization that manages the wealth and personal affairs of a wealthy family or several branches of that family. Besides managing and investing the family’s wealth, it also plans for that family’s future in a multi-generational sense, deals with tax, legal and estate planning, preparation of the next generation, philanthropic activities, bookkeeping and may even go as far as providing supporting services such as the management of art collections, planes, boats, properties and other assets.
Challenges of “Informal” Family Offices
Wealthy families invariably already have arrangements of one form or another to look after their wealth and personal affairs, usually made up of an informal grouping of some family members and staff that operate within the family business management office. However, such informal organizations create several challenges over time. First, business staff also involved in the private matters may be distracted or not always be able to prioritize between family and business duties. Second, dividing or segregating information to make sure no one person “knows everything” still requires at least one person to be able to manage the complexity, this may potentially create disparate information silos that are less than desirable (“keeping track of who knows what”), and the risk of something unforeseen happening to the person with the “full picture”. Lastly, families usually find that such organizations react to changes rather than pro-actively anticipate them, and may not readily keep pace with the increasing complexity as the family and its wealth grows, or as the business or family circumstances change with the family’s lifecycle.
Ensuring Better Management
Families that begin to experience some of these challenges consider a more dedicated and distinct arrangement. As the family extends into the next generation and beyond, the family may grow disproportionately relative to its wealth increase. By default or design, if the family has to stay together, for instance, because the family assets have not or cannot be distributed, a family office is often one of the options explored to ensure better management of this shared pool of assets, to meet the individual financial requirements and other needs of the family. This is where it may make sense to consider a more formal family office.
A “Safe Pair of Hands”
Particularly in Asia, where many family businesses continue to grow vibrantly, business owners may find it hard to manage family financial assets and run the business at the same time. The family’s wealth may also be become the business – for example, when the family no longer fully controls management or ownership because of new private or public investors; the family office can enable the family to interact with the business in a manner that strengthens the perception of good governance. The family office may also provide a focal point for the family to continue to work together on other new business or non-business enterprises. A family office may relieve the administrative burden for the family, providing the wealth owner with a systematic way of organizing the family’s increasingly complicated lifestyle and freeing up time to pursue personal interests and passions. The current generation may wish to prepare the next one – a family office serves as a “safe pair of hands” to manage things and help prepare the next generation for the responsibility of stewardship.
Lasting the Test of Time
The family should carefully consider the degree to which it wishes to “do everything” itself with its own family office. There are family offices that have, in the interest of maintaining utmost secrecy, set up full infrastructure and staff to manage every function in-house. Unless managed very well, such family offices do not last the test of time – the next generation usually ends up dismantling them as the costs compound over the years. Conversely, hiring relatively low cost administrative staff to merely act on directions and instructions from the family may not always be an appropriate solution – the office does not generally rise beyond the level of its staff, and the family never realizes its full potential.
Finding the Right Person
One of the most crucial tasks the family has to fulfill is finding the right person (family or non-family) to lead its family office. Several qualities are important. That person needs to know how to strike the right balance between growth and preservation of long term wealth. Besides the necessary professional prerequisites, he or she should also have an attention to good processes and the eye for details necessary to deal with legal and financial issues and service providers. The person must be able to build on trust and be trustworthy, for instance being able to represent a wealthy and powerful family without abusing that status. He or she should be able to gain the confidence and trust of both the current and next generation and be capable of “speaking truth to power”, for example to present the family an opposite view in a way that builds a positive outcome rather than destroys cohesion and unity. The exceptional person will be able to draw the family into a wholesome and appropriate level of involvement and interaction with the professional family office, and help nurture the right sort of independence in the next generation.
Family offices with stewardship over wealth pools of similar magnitude and complexity can have staff sizes ranging from a few persons to over a hundred. Published statistics suggest that family offices manage median investable assets of around 100 to 125 million US dollars, with an average of around 250 million US dollars. Annual operating costs average from about 40 up to 100 basis points of investable assets. However, Asian families considering family offices should view these published statistics as rules of thumb, rather than industry norms or operational standards, as they sample mostly from family offices based in America and Europe.
Quantitative and Qualitative Benefits
Whatever the costs, the benefits of a family office are both quantitative and qualitative, and the family should assess these in light of the original motivations for setting up the office. Quantifiable benefits include higher sustainable real investment growth due to more rigorous investment process and due diligence, risk management, or access to “institutional” deal flow. Savings from aggregating resources to negotiate with service providers also contribute to the bottom line. Benefits not as easily quantifiable – but arguably of equal if not greater value – include strengthening the family unity, a fuss-free generational transfer of stewardship over business and wealth, as well as preservation of the family’s legacy and enhancement of its reputation.
Source – «Credit Suisse»

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