Family office has its root in the 6th century when a king’s steward was responsible for managing the affairs of the royal family including their wealth. Later, the aristocracy also called on this service from the steward, creating the concept of “stewardship” that still exists today. The most important qualities for the earliest “family office steward” was Professionalism, Integrity, Credibility, Fairness, Non-Discriminatory, Leadership, Trustworthy, Knowledgeable, Hard Working, Meticulous Communication, Patience, Persistence, Wisdom and Understanding.
The modern concept of family office was developed in the 19th century. In 1838 the family of financier and art collector J P Morgan founded the House of Morgan to manage the family assets. In 1882 the Rockefellers founded their own family office which is still in existence and provides services to other families. The expression “family office” covers all forms of organisations and services involved in managing large private fortunes.
These can be organized either as family-owned companies, in which the family wealth is pooled, or as companies that provide financial services for these clients while the family retains decision-making powers. Many family offices were originally a single-family office. In these cases, the family is the owner of the organization and uses its services exclusively for itself. To avoid one family having to bear the very high operational costs of a single-family office, families often decide to offer the services of their family office to other families. When a “single family office” opens its services to other families it becomes a “multi-family office”.
Since the individual services of a “single family office” are tailored to the family requirement, and are correspondingly costly, the amount of family wealth under management is generally at least USD 100 million. It is more revealing, however, to calculate the minimum wealth under management in the light of return expectations a gets, and the resulting costs of the family office. This shows that there is no clear lower limit for a family office. The costs of the family office, plus the return target, must be achievable with the chosen asset allocation and structure.
Family offices are arguably the fastest growing investment vehicles in the world today, as families with substantial wealth are increasingly seeing the virtue of setting one up. It is difficult to estimate how many family offices there are because of the various definitions of what constitutes a family office, however there are believed to be at least 30,000 single family offices in existence globally, at least half of which were set up in the last 15 years. It’s believed that there at least 500,000 family offices that have been operating under the traditional stewardship model across the world even today and this seems to be the most acceptable model from a conservative family’s perspective.
The increasing concentration of wealth held by very wealthy families and rising globalization are fuelling their growth. Particularly important in the years ahead will be the strong growth of family offices in emerging markets, where for the most part they have yet to take hold ( apart from the widely operated stewardship model) – despite the plethora of large family businesses in these economies.