Calvin de Montestin

The Ultimate Single Family Office Guide

Investment Strategies, Organization of Family Offices and Industry Insights

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Inhaltsverzeichnis

Titel

Introduction: Why it is becoming increasingly important to understand Single Family Offices

The SFO portfolio: Investment focus of the HNWI investment companies

Single Family Offices as business contacts and investors

Impressum neobooks

Introduction: Why it is becoming increasingly important to understand Single Family Offices

Single Family Offices (SFOs) - the investment firms of wealthy families - are becoming an increasingly important phenomenon in the world’s business world. For years now, the number of billionaires has been rising in the same speed as the number of single family offices. These in turn are pushing into the financial and investment markets to invest their money above zero interest rates. As a result, more and more single family offices are becoming involved in real estate, private equity, venture capital and financial markets.

This eBook is a bridge into the single family office industry. Readers will be shown what is important in the SFO world, what Single Family Offices pay attention to, in which asset classes SFOs invest and how to approach single family offices.

What is a single family office?

First of all we should get clarity about the term "Single Family Office". The term comes from the Anglo-Saxon region and describes an investment company of a specific family. Single family offices are investing in different asset classes in order to achieve a clearly defined goal. In most cases, the SFO objective is to maintain the long-term value of the family assets and to generate steady payouts. Today, there are some billionaire families which are split into thousands of branches. Many of the branches only live from the payouts and are thus dependent on a good work of the family investment company.

The big question is: at which point are we talking about a family office? The answer to that question is: it depends. Well-known family office portals such as familyofficehub.io talk about a single family office as soon as one or more employees take care of the investment of the family assets in full or part time. The number of investment professionals depends heavily on the assets under management. A family with billions in assets can afford to employ a team of 10-100 people. A smaller single family office with assets under management in the one- to two-digit million range usually hands over responsibility to a few family members. These then often manage the family office alongside another activity - which often also lies in the business sector.

The first single family office was probably the one of the Rockefeller family. John D. Rockefeller, an American industrialist, made a large fortune in the oil business in the 19th century. The family assets were preserved by a holding company and family foundations - which can be compared with today's single family offices. The asset allocation is also comparable to the portfolio of some SFOs in the 21st century: The cornerstone was the family-owned company Standard Oil and its successors, enriched with substantial shareholdings and a substantial real estate portfolio.

How and why are Single Family Offices created?

The reason for starting a single family office is often the same: a certain amount of money is available and should be managed and increased for present and future generations. The reasons from where the assets originate can be different.

Most Single Family Office start-ups result from so-called liquidation events. This means that the family business is sold and a large sum of money is available. This effect is often particularly strong in entrepreneurial families, as the money usually remains in the company during the entrepreneurial activity and the family is therefore only "wealthy" instead of "rich". If the company is then sold - for example to a strategic investor or private equity investor - the large sum of money must be professionally managed and administered. This is what happened to the German Wirtgen family. They sold the family-owned construction machinery company to John Deere for 4.4 billion euros. This was followed by the establishment of the Wirtgen Invest single family office, which invests in energy, venture capital, real estate and financial markets.

Another common case is that the family has had assets for decades that are being managed more and more professionally. In many cases, professional investment firms or single family offices have also emerged from former family holdings. The further back the original foundation of the family dynasty goes, the more branched the family is today in many cases. Examples are the Rockefeller family in the USA or German landowners and industrialists. Exactly the same applies to families who own large real estate portfolios. The management of the real estate portfolio leads in many cases to the foundation of a SFO. A niche case are single family offices that only manage investments of a certain type for a wealthy family, such as start-up or real estate investments.

How do single and multi family offices differ?

When we talk about family offices, we mean single family offices (SFOs), multi family offices (MFOs) and everything in between. But the distinction is important: single and multi family offices differ greatly in terms of both competence and investment style. But what are multi family offices anyway?

Multi Family Offices are investment and consulting firms that represent several families. While single family offices are usually set up by family members, multi family offices are usually created by ex-financial advisors who want to offer their services to wealthy families.

The investment style is often different between SFOs and MFOs. Single family offices more or less directly implement the family requirements and invest in real estate, financial markets, funds, companies, etc. Multi family offices are often only active in an advisory role, helping with asset structuring and investment planning and helping to find the right asset managers ("beauty contests"). In case you approach a single family office, the way to the owner family is usually much shorter than in multi family offices, which try to shield their clients.

Of course, there are also exceptions: some Multi Family Offices are created as Single Family Offices (which open up for family investments by external investors). Other multi family offices invest directly in property deals, co-investments and start-ups. Nevertheless, the distinction is important to be able to distinguish clearly and to get a picture of the industry.

What are the tasks of Single Family Offices?

The main task of Single Family Offices is to manage and increase the family assets, without risking losses. This is also the focus of the majority of the tasks: an investment strategy must be designed, pursued and further developed. This is usually done in cooperation with the respective family. Furthermore, new investments must then be managed in accordance with the investment strategy. In (large) single family offices you usually have different teams for this. An SFO with a focus on start-up investments, funds and real estate often has multiple persons responsible for each asset class. You have to choose which fund managers to work with, which properties to buy or which start-ups to invest in.

The following process is at least as important as identifying the investments. Family office investment managers must keep a constant eye on portfolio risk in order to be able to react to special situations. Since the preservation of the wealth always has the highest priority, risk management is usually a core function of the SFO. In addition, reports need to be produced on an ongoing basis (so that family members can assess SFO performance) and tax issues need to be addressed. The distributions to the family members must also be managed.

Depending on the investment focus, the single family offices are usually stronger in the relevant areas. A single family office with a substantial real estate portfolio often acts as an asset manager or project developer. An SFO with a private equity focus employs PE professionals, etc.

Some SFOs also take on secretarial tasks or take care of the welfare of family members: Flights are booked, bills paid, semesters abroad organized for the children.

Who works in Single Family Offices and how are they organized?

Who works in Single Family Offices and how they are organized depends strongly on the size and the founding occasion.

The "old money" single family offices usually have a strict, conservative structure: family members form the supervisory board, which oversees a CEO who heads the family office. In some cases the CEO is a family member, in other cases this is explicitly prohibited through the family charter. The CEO usually corresponds to a classic scheme: Harvard degree (or that of a comparable American elite university) and years in investment banking / consulting or activities in the highest circles of the economy. The hierarchically subordinate investment managers also come from banks or consultancies and have a respectable curriculum vitae to show.

The "New Money" single family offices (from liquidation events) are often more relaxed here. The management is often taken over by the entrepreneurs themselves. Alternatively, the SFO's leaders come from the family business or the banking environment. Often the CFO of the former or current company becomes the "Head of Family Office". Alternatively, the CFO can also take on family office responsibilities in addition to his or her duties.

In smaller and more specialized SFOs, the question does not arise at all, since too high salaries for employees would eat up the return. Therefore, family members take over the administration themselves, whether as part-time or full-time jobs.

The SFO portfolio: Investment focus of the HNWI investment companies

The core task of Single Family Offices is to invest and manage family assets. The fixed assets