Multi-family offices have enjoyed strong growth over the past couple of years, while single-family offices are seeing some improvement, but are nervous about new regulation, according to two new surveys by the Family Wealth Alliance.
“Multifamily offices are back on the path to growth,” said Thomas Livergood, FWA
chief executive of the FWA, noting that the $357.3 billion in assets of participating firms in the survey compares to $192.5 billion among participants five years ago. “The multi-family office model continues to gain traction in the marketplace,” Livergood said, “and future prospects remain very bright.”
A number of the industry’s top firms, such as Aspiriant, Threshhold, Silverbridge and Pitcairn have expanded, noted Robert Casey, senior managing director of research for the FWA, while high-powered new firms such as Pathstone Family Offices and others around the country have entered the business.
“It’s notable that the new firms are holding themselves out as family offices, which wasn’t always the case,” Casey said. “The multi-family office has become an accepted and very attractive business model.”
Nearly 80 percent of executives at multifamily offices overwhelmingly said their firms are in a stronger competitive position compared to three years ago based on their investments in technology, professional staff, and business process improvements, according to the Wheaton, Ill.-based organization’s annual study, which surveyed 72 MFOs this year.
Assets under advisement of the firms grew 8.2 percent to a total of $357.3 billion at year end
2009, with an average client relationship size of $49.6 million.
Human capital issues including recruiting, employee development and compensation were cited by executives as the industry’s major challenges.
In addition, half of the MFOs surveyed said they held informal talks with another firm
about a business combination in the last 12 months, and more than a quarter (28.5 percent) said they are likely or somewhat likely to acquire a smaller firm in the next year.
SFOs Recovering, Worried About Regulation
As for single-family offices, “They’re no longer in panic mode and are more confident across the board,” Casey said. “The farther away they get from 2008, the better they feel.”
Indeed, investment performance at single-family offices has turned around as markets have
recovered. Executives at 34 SFO firms surveyed by Family Wealth Alliance reported a 6.1 percent gain in assets under supervision in 2009, compared to a 9.0 percent loss in 2008 among those taking part in last year's study.
But widespread concern over new regulations targeting single-family offices have dampened optimism. Before Dodd-Frank became law in July, family offices did not have to register with the Securities and Exchange Commission if they had fewer than 15 clients, an exemption that was highly coveted by wealthy families concerned about privacy.
But the new law, which goes into effect in July, eliminated the exemption. Family offices will however, be able to avoid SEC oversight if they meet the agency’s definition of a family office, which is currently being formulated.
Some industry observers believe the new regulation will result in increased opportunities for registered investment advisors, and everyone agrees single-family offices will be studying their options carefully.
“Regulation wasn’t even on their radar before this year,” Casey said, “but it’s a big issue now. “The era of doing nothing as an option is over.”
A total of 34 firms ranging in size from $42 million to $1.5 billion participated in the new study, with average assets under supervision of $516 million and aggregate client rosters that include more than 1,700 family members. The universe of U.S.-based single-family offices is estimated at 2,500 to 3,000.
