Founder, CEO of Blue Lake Capital LLC. Helps passive investors grow wealth through real estate. Podcast Host: REady2Scale.
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Family offices have been around for a while, but in recent years, I’ve seen rapid growth in their development. A family office is a private company that handles investments and wealth management for ultra-high-net-worth individuals and families. Generally, that means people or families with $100 million in investable assets or more, with the main goal of organizing and managing the wealth for the next generation.
Family offices can serve one individual or family with multiple members, or several wealthy families can combine their assets to share the costs of managing a family office. This is helpful when one family doesn’t have enough assets on their own to start a family office. There are several advantages of developing a family office.
Advantage 1: A Dedicated Team That Manages The Family’s Wealth
One of the main advantages of having a family office is that you have a dedicated team that analyzes and tracks your investments. Wealthy investors can use companies like Charles Schwab and others to manage their portfolios; however, at some point, they may reach a level of wealth that makes more sense to have their own investment team.
The dedicated team analyzes real estate investments — whether directly or alongside sponsors like myself — as well as private equity, stocks, angel investing and startups. One of the keys to having success with a family office is for the team to have a deep understanding of the family’s needs, risk tolerance and other investment criteria. In many instances, the family office helps to keep a high level of confidentiality and privacy on the family’s assets and investments.
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Advantage 2: A Structure That Is More Cost-Effective
With a family office, you’re hiring a team of experts to take care of the entire investment portion of generational wealth creation. This enables the family office to combine resources and save money. One of the biggest savings is not having to pay outside advisory services, as the talent is within the office.
Most often, a family office will focus more on asset management and acquisition than on personal finance. They often provide tax planning, manage charitable donations, coordinate the buying and managing of properties and manage investments.
Advantage 3: Centralizing The Risk
Family offices consolidate the operational risk and operational management since it all goes through one channel. This helps owners of family offices make more effective decisions and meet their family’s, or their own, investment objectives. When you collaborate with other family members or groups, you have a better chance of centralizing the risks.
Family offices can be centered around one major source of income or diversified across multiple industries. For example, one family office I’ve seen has the main purpose of investing in multifamily properties. Their executive management team also hires in-house property managers to manage the assets. Real estate is their main source of income, and the excess cash flow from those assets is often reinvested with venture capital firms for angel investing.
Another structure is a family office that owns assets in a variety of investment arenas, from stocks to triple-net leases. They’re highly diversified and don’t focus on any one area. There’s no single source of income that feeds into other investments. The advantage to this diversification is that if one specific investment area suffers a downturn, they have assets in many other areas to balance those losses.
Summary
A family office is a private company that handles investments and wealth management for ultra-high-net-worth individuals and families. Some family offices focus only on real estate investments, while others choose to diversify their investments across many different assets. A dedicated team of highly experienced professionals manage the wealth and help transfer it to the next generation. This dedicated team combines resources and in-house talent, which saves families money and consolidates the operational risk and management.
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