Family Office Investing

Video transcript

Family office investments since our inception in 2007 we found that there are two basic motivations for single-family offices to join tfoa the first are primarily looking for peer support and advice for matters ranging across operations structure design governance and long-term planning the second are looking for like-minded families to co-invest with on direct deals where they can share their expertise and learn and benefit from the expertise of others regardless of their motivation for tfoh membership all family offices want to ensure that they are running investment operations well the world of family office investing can be confusing to those that work outside of family offices in part because of the unique position family offices find themselves in as a result of the sec's family office rule the family office rule creates a regulatory exemption for family office investment activity under the rule family offices do not need to register with the sec as an investment advisor this allows families to avoid the financial and administrative burdens under the advisors act as well as additional state or licensing requirements the adoption of the rule comes from the fact that families that have set up their own family offices are financially sophisticated and the protections from the advisors act are directed toward more retail investors family offices have effectively one client and their assets under management are wholly owned by that client while macroeconomic trends have facilitated the growth and proliferation of family offices the family office rule also directly correlates to the recent expansion of the family office market to put it simply many family offices simply wouldn't exist today without the family office rule for some families it makes more financial sense to build a family office and benefit from the rules exceptions than it does to create a traditional investment company or to invest as a limited partner investment focused family offices must develop relationships to effectively partner and co-invest with others or pursue a more internally self-sufficient solo investing strategy given the scale and aum of family offices the entire universe of investable assets is usually available to them creating a diverse portfolio to ensure appropriate diversification can mean reaching across the entire spectrum of equity debt derivatives and real assets in order to achieve the family's desired portfolio objectives despite the benefits that come from the family office rule the restrictions that the rule puts on families means that families operate somewhere between high net worth retail investors and institutional investors when it comes to directly investing in private deals family offices often build institution-like operations for this but because they cannot hold themselves out to the public as an advisor they're limited in the ways that they can partner with other capital sources this means that the only the largest family offices can truly operate like an institutional investor within any direct strategy family offices must define for themselves what their edge is experience with a particular investment or industry network connections for rare off-market opportunities and the ability to attract and retain excellent talent to execute and manage a portfolio of direct investments over a multi-year period for families that want to develop direct investing capabilities there are three distinct areas that family offices must solve for sourcing and screening diligence and negotiation and management and exit finding opportunities vetting opportunities and executing investments are the three stages of direct investing lastly the investment policy statement or ips is an important governance document that can help define targets and the process through which the family can achieve their investment goals an ips should define the strategy establish baseline allocation targets define roles and responsibilities outline monitoring and reporting processes and make room for regular review and revision thank you to learn more visit our website at tfoa.info