The Future of Family Offices

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August 25, 2012
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Even though Wealth Management Family Offices have a long history in the U.S. the 1990’s and early 2000’s saw a proliferation of Single Family Offices (SFO) and Multi Family Offices (MFO). The tremendous amount of new wealth created when entrepreneurs sold businesses led to an increase in family wealth that led many to seek the privacy and control offered by a family office. Recent poor investment performance in global markets coupled with potentially stricter regulatory restrictions, have left many existing family offices debating the effectiveness and efficiency of their current structure. Since 2008, households have lost trillions of dollars of wealth due to the global market downturn and collapsed real estate assets. The question going forward is how best to preserve assets in times of greater volatility and uncertainty. Permanent impairment of capital can affect current and future generations as well as philanthropic goals.

Many family offices would rate themselves highly when it comes to the effectiveness of their structure, but due to the recent loss of investment assets, efficiency has become an equally pressing concern. Principals and heads of family office are evaluating how to define best practices relating to roles and responsibilities. As recent research from the Institute for Private Investors suggests, the investment structure of the family office merits evaluation.

As family offices consider seeking outside investment counsel, they should at a minimum find professionals who are completely objective, fully transparent, have depth of professional representation and are aligned with their clients. Beyond this, outside experts should have the ability to be fluid and flexible to meet specific needs or mandates. At Balentine, we work with family offices to overcome these challenges by helping them maintain privacy and control while offering effective and efficient solutions for asset management. As independent investment advisors under the Outsourced Chief Investment Officer (OCIO) model, we are able to accomplish this using a variety of relationship strategies, including the following:

  • Balentine manages a dedicated amount of assets on a discretionary basis (e.g. family foundation, single or multiple trusts, individual accounts).
  • We manage dedicated pools of assets while members of the family office concentrate on another area of focus. As an example, Balentine may take responsibility for investing in more liquid public markets (e.g. our Market Risk building block) while the family office concentrates on illiquid or direct private investments (Manager Skill, Private Capital).
  • Balentine acts as part of the internal investment committee or counsel to work with members of the family office to help in the broader mandate of risk management, investment and implementation recommendations – without discretion. This is most common when there is an internal investment process that pulls from our global depth and perspective of markets to help navigate a specific or overall strategy.
  • We work with members of the family office to oversee other financial providers for specific asset classes with the charge of defining the overall asset allocation.

As the investment and regulatory world evolves, so must investment professionals and family offices. It is without a doubt a large decision; however, choosing outside investment expertise using one of the arrangements outlined above may be appropriate to help alleviate financial stress, streamline efforts and allow family offices to focus more efficiently on fulfilling their broader goals and objectives.

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