Family Offices' Governance Can Do Better, Sector Needs Rebrand – Advisor

Tom Burroughes

20 April 2023

Family offices are more populous, they’re getting a higher (not always easy) profile and are increasingly important players in the investment landscape. Yet they often aren’t governed well enough and need help to keep a coherent structure together, an advisor in the space says.

The number of family offices globally grew by 38 per cent from 2017 to 2019 and today they collectively control $6 trillion in assets (source: Campden). In 2021, family office-backed deals accounted for 10 per cent of the entire deals market. Big banks such as , which has a database on single-family offices around the world, including those in the US.

Why they exist
It is sometimes said that family offices are founded by people unimpressed by the service they get from banks. Is this the case?

“It’s not that UHNWs are unhappy with banks – banking relationships can be important relationships for family offices due to lending, investment access, etc,” Truax replied. “The challenge is really that there are many trade-offs which are important to understand and actively manage when partnering with a bank – these include potential conflicts of interest, hidden incentives, etc. Furthermore, while banks can provide broad access they don’t always provide the best access to investment opportunities, at least as it pertains to family offices. Investments that could be very interesting to a family office may not make sense for a bank to source and support either due to economic reasons (e.g. investment opportunity size is too small to ‘move the dial’ for the bank to diligence) or risk reasons (e.g. too complex or too illiquid for most of the bank’s customers),” she said.

“As a result, we see this trend emerging where families will put a meaningful portion of their assets across several banking partners but retain a significant portion in-house focused on unique alternatives that they hope will either provide outsized returns or advance other goals such as impact or personal interest,” Truax said.

The future
Truax said that a change already well underway is how family offices are disintermediating lower middle-market and middle-market private equity firms.

“Family offices have long been avid investors of PE funds and co-investments, but more and more we are seeing these families bid for deals directly – and frequently win. While they tend to move more slowly than a PE firm, business owners like the idea of selling to a family rather than PE – the long time horizon and espoused values give sellers comfort that the teams and companies they’ve built will be treated with respect,” Truax said.