Over the past ten years, the amount of family offices (“Famos”) has strongly increased. The growth that we saw globally, will only increase further in the next years as it is becoming more popular. Currently, there are approximately 10.000 single-family offices. This is ten times as much as the number in 2008.

The firms get even more fascinating when you look at the wealth that they manage. As big as they are now, they make transactions as large as big companies and private equities. This shows that they are getting more disruptive in this competitive market.

Banks also notice the growth and start working with the family offices. They assign senior bankers to support the Famos in managing.

What is a family office

Family offices are a wealth management concept wherein ultra-high net worth individuals or families pool their liquid wealth with the express aim of preserving and growing it.

Nowadays, Famos vary a lot from each other in their actual activities. Smaller family offices may simply be a personal assistant who could support with for example business administration. Other activities could be on a smaller scale such as making payments or making travel arrangements. On the other side, the bigger families with significant wealth may range from investment advisors, lawyers, property managers and more. This article is merely focussed on the latter.

Family Offices: Who Are They and How Do They Work (Malaysia)

There are two types of family offices: single and multi-family offices. Single-family offices are more traditional. They mostly serve as advisors or wealth managers supporting one high net worth family. Multi-family offices serve multiple families. Especially this concept is growing really fast. The well-known Rockefeller family is an example and currently has over 250 clients.

What do family offices invest in

A firm’s investment style is mostly based on a given family’s wealth. Generally, Families in Asia tend to invest in ‘growth’ assets which are the same objectives as Venture Capital or Private Equity.

First-generation single-family offices are mostly interested in alternative assets such as real estate, venture capital or private equity. The strategy is often determined by country, generation, the origin of wealth, size and stage or experience of the family itself.

Longer-tenured famos invest their money across an array speciality asset classes. They have experienced management teams to take control of the investments. Especially when firms take active positions in equity and bond markets.

In the past, the families invested in hedge funds or private equity funds as fund-of-funds investors. Nowadays, as family offices are growing and as they want to have more control over their investments, it also occurs that they provide companies with professional management teams.

What makes Family Offices attractive as an investor

Family offices can invest in venture capital, private equity, real estate, hedge funds etc. While they are not considered Venture Capitalists, they can work as one. The difference is the value they bring with them besides the actual fund.

The first interesting item is the long-term nature of the capital. A Famos owns capital that is built up for generations. They can stick with a company as long as they want, unlike Venture Capitalists who invest on a contractual basis with a limitation in time horizon.

The second point is not necessarily differentiating but it can be a benefit depending on the VC. The given families often come with a strong network. This is really useful for young entrepreneurs who are often inexperienced and can benefit a lot from experienced entrepreneurs. Besides knowledge and experience, a network like that can often also contain support in tech or legal issues.

Learn more about how NEXEA helps entrepreneurs through a strong network together with many other services.

The investment process

They way those families make investments is different per family as there is not an obligation towards any party. It is really private. Families differ in terms of vintage, experience and maturity of the office, the investment manager, and the idiosyncratic dynamics of the family.

In a lot of cases, after the initial screening, it is normal to grab some beverages as those type of families tend to work less formal than for example VC’s. Venture Capitalists work more democratically as there are more parties to rely on.

The investment process multi family offices Malaysia

Multi-family offices are more formal than single-family offices. Single-family offices depend heavily on one or two persons within the family as with multi-family offices there are mostly more layers.

Besides expectations with formality and courtship. There are two more characteristics which are good to be aware of. Do take into account that this is general and may not apply to all families but is good for shaping an expectation when working with them.

  1. Confidentially; Famos may prefer to keep their investment deals not announced and as quiet as possible. They value their privacy as they are private investors as well. Generally, founders are not too happy because there is not as much effect through press releases and other types of publication.
  2. Integrity and communication; With comparison to a VC, a Famos relies more on communication. They have a niche position in the large market unlike VC’s as NEXEA who is more focussed and specialized in a given sector than the average Famos.

    They have a lot of knowledge when it comes to the strategic landscape, business models or other involving areas. Generally spoken, Famos differentiate themselves from venture capitalists with their “evergreen” capital. As the investment is more personal and relationship-based, family offices will stand by their companies at all times. Communication, transparency and integrity are optimised between the two parties.

Things entrepreneurs should know about family offices

Below are some factors that entrepreneurs have to accept and face when working with a Famos. Whether a founder can cope with these is very important for working with them.

Control-oriented; in general, communication plays a big part in family offices. That said, it works differently than for VC’s or traditional investors. Unlike most VC’s, Famos tend to communicate through pointed interactions. Since they like to have control over the company, they desire a more effective communication than the constant communication with reams of data that is used by other investors.

Learn more about the different types of investment sources.

Hard to predict behaviour; before onboarding a Famos, it is hard to gain information about them. The best source is a fellow entrepreneur who was funded before and can talk about the experience. For the reason that family offices tend to not publish their investments, it is generally a challenge to find out more about the family’s portfolio. The best way is to be introduced by the family itself.

Decision making; unlike Venture Capital firms, there is less democracy within families. The decision-making power often lies with the more powerful family members. An associate for instance generally has more to say in a VC than associates within a Famos. When trying to drive important decisions, be careful to not be ignored by talking to the right person.

Work with successful entrepreneurs; before establishing an investment management company, the family consisted of experienced entrepreneurs. Throughout the years they built a significant fund that they can invest in companies. These families come with a lot of experience in business and working with them can really positively influence your decisions.

Do apply for Startup funding from NEXEA, which manages multiple groups of family offices.

References

Alan Binnington, Families can benefit from having dedicated staff to manage their wealth, but there are key factors to consider., RBC Wealth Management, Available at https://www.rbcwealthmanagement.com/gb/en/research-insights/considering-a-family-office-heres-what-you-need-to-know/detail/

Francois Botha, The Rise Of The Family Office: Where Do They Go Beyond 2019?, Forbes, Available at https://www.forbes.com/sites/francoisbotha/2018/12/17/the-rise-of-the-family-office-where-do-they-go-beyond-2019/#32cfab585795

Parkview, Single or Multi-Family Office?, Available at https://www.parkview.ch/single-or-multi-family-office

Vidur G. Gupta, Family Office Investment Guide: An Alternative to Venture Capital, Toptal, Available at https://www.toptal.com/finance/fundraising/family-office-investment-guide

Family Offices: Who Are They and How Do They Work (Malaysia)
Family Offices: Who Are They and How Do They Work (Malaysia) familly offices, Multi family office, Single family office, startup funding 2 | NEXEA

Over the past ten years, the amount of family offices ("Famos") has strongly increased. The growth that we saw globally, will only increase further in the

Editor's Rating:
5