Investors coming across the term “family office” may wonder how firms of this type operate, what they do, and what qualifies you to have one. The term is a nebulous one, especially because no two family offices are alike: in fact, it’s been said that “once you’ve seen one family office, you’ve seen one family office.” So while blanket statements about this type of firm aren’t necessarily helpful, it’s still instructive to understand the fine print. Just what are family offices, and how do they differ from other types of firms in private wealth management and investment management?
By breaking down the differences between family offices and private investment groups, we can begin to decipher how each–whether together or separately–can work to the advantage of companies and investors.
Family offices manage private wealth
Family offices manage the wealth of investors’ and their families, typically by outsourcing the entire financial and investment side of an individual family or group of families. In doing so, they advise and manage the wealth of these families as well as handle other financial aspects like budgeting, insurance, charitable giving, family-owned businesses, wealth transfer and tax services.
The two main breakdowns of family offices are single-family offices and multi-family offices, sometimes referred to as MFOs. You might think of a single family office as a family run like a business, focused on servicing a wealthy individual’s assets and needs from house care and schooling, to taxes and investments. A single family office will be run by professionals that focus solely on the family’s needs.
An MFO, in contrast, serves many different families and investors more like a traditional private wealth management firm or private investment group.
Private investment groups have similar investment functions
Private investment groups more closely resemble MFOs than single family office. Both family offices and private investment groups invest the wealth of a group of families or investors, but the nature of these investments could be quite different.
The families and co-members of private investment groups are typically sophisticated and experienced investors in their own right. The primary objective is to build wealth through a flexible and wide-ranging investment mandate,and they are usually supported by an experienced team of professionals. Whereas a family office may be more passive in nature, private investment groups are typically much more active, direct, and hands on when it comes to managing their investment activities.
The best of both worlds
Not all family offices are created equal, and the same goes for investment groups. In addition, the two are not mutually exclusive. My company, Volta Global, for example, qualifies both as a family office and a private investment group. Like a typical family office, we manage a permanent capital base, which lends itself to a much longer term time horizon and investment perspective, as well as making for greater flexibility in our investment criteria.
In line with the description of a private investment group I mentioned earlier, our investment activities are managed by a team of very experienced, sophisticated professionals with extensive experience in private equity, public markets, and real estate.
This gives us the freedom, flexibility, and skills to invest globally, across many asset classes, and without the pressure of short-term capital cycles. The “best of both worlds,” as we like to say. We also partner with other groups, other private investment groups and family offices alike, in which we have a high degree of trust and respect.
Whether you are an investor looking for opportunity or an entrepreneur looking for capital, these distinctions—and potential associations—will be worth keeping in mind.