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Family offices going back to basics

Thursday 17 December 2009 by Gina Le Prevost

Ultra-high-net-worth families are taking a long, hard look at the performance of their family offices as events of the last year have laid bare weaknesses and strengths. Many will concentrate on core wealth management functions while considering offering services to outside families, consolidating with other family offices or closing, finds the 2009 U.S. Trust®/Campden Research North American Family Office Survey.

Released today as part of a new study entitled Building for the Future, the North American Family Office Survey provides a comprehensive look at the state of the family office, the most pressing issues they face and the road ahead now that market volatility appears to be subsiding. With 81 percent of their investment strategies impacted by the recent credit crisis and market correction, the study provides invaluable insights into how family offices are focusing their resources to concentrate on core mandates, addressing risk and planning for the future. This ground-breaking research includes findings on how owning a family business affects risk tolerance, the wealth management focus and overall services offered by family offices.

The research was conducted between June and September 2009 by interviews and an online survey with family office executives and family principals from 40 single-family offices and 10 evolving multi-family offices in North America. It captures a complete spectrum of family office models, as family offices transition from closed operations serving only the founding family to operations opening specific investment or advisory services to non-family clients, consolidating into private multi-family offices (MFOs), and becoming full-fledged commercial operations.

"Like most financial services organizations, family offices were not immune to recent market upheavals," said Belinda Sneddon, group executive, U.S. Trust Family Office, part of U.S. Trust, Bank Of America Private Wealth Management. "Scandals and widespread investment losses have left family offices poised for a period of significant evolution. The family office model is turning back to basics, enhancing risk assessment and focusing on its strengths which lie primarily in wealth management services."

Key findings include the following:


Family offices are:


-Recruiting in-house research analysts and expanding their interest in proprietary research. Twenty-three percent of family offices acknowledge financial analyst skill shortages, and 22 percent plan to recruit them over the next three years. -Rethinking long-held models with an emphasis on managing liquidity and becoming more opportunistic.


-Returning to core mandates of consolidated control of wealth management. Nearly all SFOs offer financial advisory services (92 percent offer trust and estate planning, financial planning and tax planning) with a significant minority (49 percent) offering life management or concierge services.

-Heavily weighting features such as the reputations and recommendations of financial services providers. On a scale of one to five, with one as "most important," "confidentiality" (1.58) and "reputation" (2.17) ranked among the top criteria for selecting a financial service provider.

-Considering opening to non-founding family clients (28 percent). Their main motivations are increasing their access to investment opportunities by having greater assets under management (54 percent), and retaining their top investment professionals by providing more opportunities to earn and run more and larger investments (31 percent). They are focusing on opening an internal hedge fund or private equity fund (23 percent) or, to a lesser extent, a private equity or hedge fund of funds or diversified investment services (15 percent).

-Though expressing no specific plans to close, 31 percent said it was a possibility, even if remote.

"The tumultuous economic and market climate of the last thirteen months has exposed the weaknesses and strengths of the family office model, and as a result, we are going to see family offices increasingly concentrating on core competencies and looking to others to provide non-core services," said Mindy Rosenthal, managing director of Campden's North American Business and author of the research. "Now more than ever, family offices will be considering significant organizational changes ranging from consolidation with other family offices, opening services to non-family clients or possible closure."