The post-pandemic wealth boom has sparked an explosion in family offices and sparked a new gold rush among Wall Street firms, private equity funds and investment advisors to manage the fortunes of the world’s wealthiest families. By some estimates, family offices now manage more than $6 trillion in assets, surpassing the estimated $4 trillion managed by hedge funds. They have quickly become a powerful force in financial markets, mergers and acquisitions, crypto and real estate, competing with many sovereign wealth funds, endowments and large corporations. As global wealth continues to grow, particularly in Asia, experts believe family offices will play an even bigger role on the investment stage. “The size of the fortune is enormous,” said Andrew Cohen, chief executive officer of JP Morgan Private Bank. According to Forbes, between the market lows of March 2020 and spring 2022, the wealth of the world’s billionaires grew by an estimated $5 trillion to nearly $14 trillion. While recent losses in the stock market, crypto and other asset classes have eaten into some of those gains, the wealthy (particularly in the US) are still sitting on piles of capital stemming from fiscal and monetary stimulus. In the US alone, the top 1% of Americans alone has added $11 trillion to their wealth since the beginning of 2020, with the total hitting $45 trillion in the first quarter, according to the Federal Reserve. Family offices typically cater to investors with net worth of $100 million or more, although a growing number have billions or even tens of billions in assets under management. They are secretive by nature and most are not required by national financial regulators to disclose their positions or assets. Campden Research estimates that there were more than 7,000 family offices worldwide managing nearly $6 trillion in 2019, and industry experts say the number has likely only increased since then. Accounting firm EY estimates that there are more than 10,000 family offices around the world managing a single family’s wealth as of at least half of this century. Families want more control In addition to growing wealth, the move to family offices is also being driven by a changing way in which the wealthiest families manage their wealth. They want more control and less reliance on traditional wealth management firms and high fees, mediocre performance and product pressure. As more wealth is passed on to the next generation, younger investors also want more engagement and “value” investing. And today’s global rich, many of whom have built and sold multinational companies, require an equally broad approach to their personal investments. Many billionaire hedge fund managers, seeking lighter regulation or freedom from benchmarks and demands from outside investors, are also converting to family offices. John Paulson and Leon Cooperman, for example, have both moved to family offices in recent years. “Maybe 35 years ago, the goal was financial security and wealth preservation. That is no longer the case today. Now it’s all about finding opportunities.” Founder, Family Office Exchange Sara Hamilton “The world of investing has become more complex, so more and more families are responding to that sophistication,” said Cohen. “And we’re in this transformative time, where wealth is being passed down through generations.” Of course, family offices have been around for centuries, most notably managing the fortunes of John D. Rockefeller and JP Morgan. Most still perform the “concierge” duties of a wealthy family, from arranging travel and managing the jet and car fleet to paying bills and managing properties. They also typically handle taxes, estate planning, and succession issues for the next generation. However, today’s larger family offices operate more like global full-service investment firms. They trade stocks, fixed income, currencies, crypto and commodities. They buy residential and commercial real estate and land all over the world. They invest in private equity and venture capital funds and are increasingly making their own acquisitions and start-up deals. The growth has made family offices a hot growth area for Wall Street banks and wealth management firms. Goldman Sachs, JPMorgan, Bank of America, Citigroup, Credit Suisse, UBS and Deutsche Bank are all strengthening their family office businesses and expanding their offerings. Their goal is to attract more family office deals by providing access to the same services and expertise as other institutional clients – from trading and credit to private equity, due diligence, technology and hedging. “You could have a family that’s in the 100-ship shipping business,” said JP Morgan’s Cohen. “They may need financing, currency and commodity hedging. Or maybe you have a family that has sold a pharmaceutical company and wants to replicate those returns and is looking for growth opportunities. So you can have multiple asset classes, across multiple geographies and across multiple generations.” The also expanding Morgan Stanley Family Office unit began bringing family offices onto a new asset tracking platform last year and has more than 25 to date Added billions of dollars in assets. “They think more like institutions than families,” said Daniel DiBiasio, head of the Morgan Stanley Family Office. “We believe that these ‘individuals’ deserve more of a business-to-business relationship.” More and more family offices are also daring to take the step into self-employment to buy private companies, take part in shares and found start-ups. According to a report by UBS that surveyed its family office clients, family offices have about a third of their portfolios invested in stocks, 11% in fixed income, and about 10% in cash, which have remained fairly stable. Family offices’ allocation to private equity and direct investment rose to 21% in 2021 from 16% in 2019, according to the report, the largest increase of any asset class. The remainder is accounted for by real estate and other assets. More than half of the offices plan to increase their investments in private equity over the next five years – the largest share for all investment segments. Buying and financing companies outright means family offices are now competing for business with venture capital and private equity firms. MSD Partners, the investment firm that grew out of Michael Dell’s family office, recently hired Goldman veteran Gregg Lemkau as CEO and last year acquired a 50% stake in digital consulting firm West Monroe. The deal followed MSD Capital’s acquisition of Ring Container Technologies, a manufacturer of plastic containers, in 2017. BDP Capital Partners, founded by famed banker Byron Trott, has around $30 billion in 41 mostly family and founder-run companies invests – with the majority of the investments coming from entrepreneurs and family offices. In addition to better returns, direct investments reward family offices for their longer time horizon. Entrepreneurs who have sold their business and started a family office often want to remain active in the industries they know best and use their expertise to create new success stories. “This new wave of liquidity from the first generation of founders is driven by the potential to do this again and again,” said Sara Hamilton, founder of the Family Office Exchange. “They want to share their knowledge across industries and make a real impact. Perhaps 35 years ago, the goal was financial security and wealth preservation. That is no longer the case today. Now it’s about finding opportunities.” Countries are also competing for the family office’s spoils. Singapore recently created a Family Office Development Team to lead and coordinate initiatives that will attract more family offices. The city-state collects no capital gains tax and allows family offices to claim a tax exemption on their income. The Wealth Management Institute launched the Global Family Office Circle in Singapore to attract more family offices. According to GFO Circle, the number of family offices in Singapore has more than doubled since 2019. Among the newcomers: the family office of Nicky and Jonathan Oppenheimer of the diamond dynasty, which recently announced an outpost in Singapore. Google co-founder Sergey Brin and British vacuum magnate James Dyson have also opened family offices in Singapore. Plea for more supervision However, the rise of family offices has also prompted calls for more regulation. Because single family offices serve only a single family, they are not required to register with the SEC as investment advisors. Even family offices that serve more than one family often receive an exemption from the SEC to keep their records confidential. Last year’s multi-billion dollar collapse of Archegos Capital Management, which was spearheaded by former hedge fund manager Bill Hwang, sparked renewed calls for more disclosure and restrictions. Rep. Alexandria Ocasio-Cortez, DN.Y., drafted a bill that would require family offices to register with the SEC as investment advisors unless they have less than $750 million under management. “The Archegos explosion has destroyed every rationale for exempting family offices from regulation and transparency,” said Dennis Kelleher, CEO of nonprofit advocacy group Better Markets. Kelleher said Archegos has refuted the two key arguments for excluding family offices — that they don’t pose systemic risk and that they don’t harm everyday investors because they’re only investing for a single family. Kelleher said the fact that Archegos inflated its $1.5 billion portfolio to $35 billion and caused massive losses in several publicly traded stocks underscores the need for SEC regulation. So far, however, the family office lobby has successfully defended itself against new regulations. They claim that regulation failed to prevent Archegos’ losses, which misled its brokerage firms. Meanwhile, experts say that as financial markets become more volatile and stocks fall, family offices have the flexibility, speed, balance sheets and patience to continue to thrive in a recession. “We’re talking about investors with a time horizon of 100 to 200 years,” Hamilton said.