What is a family office ?

Family offices have their roots in the sixth century, when a king’s steward was responsible for managing royal wealth. Later on, the aristocracy also called on this service from the steward, creating the concept of stewardship that still exists today. The modern concept of the family office developed in the 19th century. In 1838, the family of financier and art collector J.P. Morgan founded the House of Morgan to manage the family assets. In 1882, the Rockefellers founded their own family office, which is still in existence and provides services to other families.1 The expression family office covers all forms of organizations and services involved in managing large private fortunes.

These can be organized either as family-owned companies, in which the family wealth is pooled, or as companies or bank departments that provide financial services for these clients while the family retains decision-making powers. Many family offices were originally a single-family office. In these cases, the family is the owner of the organization and uses its services exclusively for itself. In order to avoid one family having to bear the very high operational costs of a single-family office, families often decide to offer the services of their family office to other families. When a family office opens up its services to other families it becomes a multi-family office.

Since the individual services of a family office are tailored to the family, and are correspondingly costly, the amount of family wealth under management is generally at least
USD 100 million. It is more revealing, however, to calculate the minimum wealth under management in the light of return expectations and targets, and the resulting costs of the family office. This shows that there is no clear lower limit for a family office. The costs of the family office, plus the return target, must be achievable with the chosen asset allocation and structure..

Family offices are arguably the fastest growing investment vehicles in the world today, as families with substantial wealth are increasingly seeing the virtue of setting one up. It is difficult to estimate how many family offices there are because of the various definitions of what constitutes a family office, however there are believed to be at least 3,000 single family offices in existence globally, at least half of which were set up in the last 15 years..

The increasing concentration of wealth held by very wealthy families and rising globalization are fueling their growth. Particularly important in the years ahead will be the strong growth of family offices in emerging markets, where for the most part they have yet to take hold – despite the plethora of large family businesses in these economies.

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