Glossary

Family Offices

Family Offices

Family offices are wealth management firms that look after the investment needs of ultra-high net worth individuals (HNWIs) and their families. And they could be the solution you're looking for when you are looking to get extra funding for your business.

What is a family office?

The name gives quite a big hint when it comes to the definition of a family office. Quite simply, they are privately held companies that take care of the interests of a specific HNWI – and their wider family. The purpose? To grow that family's wealth even further and transfer it across the various generations. The capital that sits behind that company is the family's wealth.

A family office can act in many different ways to protect and increase that wealth. Investment management is one option available, which could be encouraging if you run a business in need of funding. But family offices can also take care of things including property management, day-to-day accountancy, tax planning, and charitable giving.

It's normally the case that a family office will provide highly bespoke services on behalf of that HNWI and/or family. As such, running costs are often significant. And that's why a family's net worth will have to be considerable. According to Ernst and Young, that figure is US$100 million in investable assets. In some cases, however, that amount can be lower. 

How does a family office work?

In the simplest terms, HNWIs can hire established legal and financial experts to look after their affairs. For the HNWI, the expectation is that those people will act in line with their wishes and ambitions. And this can vary from complex cash matters to daily operations.

As such, a family office can include a broad range of different professions in both specialist and general terms. But often the point is that wealthy families need much more than one advisor in order to effectively manage their wealth. In some cases, it can even require bespoke expertise.

There are two main types of family offices too.

The first is a single family office (SFO). Again, the clue is in the name in that an SFO will be set up by families with significant wealth. This will oversee almost every aspect of their wealth, and make sure the family's interests are represented without any external bias or influence.

For families who might not have US$100 million in investable assets, an option might be to call on a multi-family office (MFO). While an MFO will represent more than one family, there will be a restriction on how many clients they take on.

The upside of an MFO for such families is that you can get the same services as an SFO – with fewer of the costs attached. You also won't need to set up a new business as part of it.

Who needs a family office?

Not all HNWIs will need a family office. But it's not hard to see the benefits of having one if you have multiple things to consider. If anything, there's a peace of mind aspect to it. When you've got skilled experts looking after your wealth, it takes away some of the burden from the family.

The bottom line for HNWIs is whether keeping an eye on various financial needs is too much of a hassle. It stretches across different areas too. Tax, estate planning, trusts, and philanthropy. In some cases, only a family office can give the expert advice needed to make sound decisions.

And that's very much the case when it comes to making investments to increase that wealth.

Can a family office benefit my business?

There's no reason why not. A family office can be heavily involved in investment management, which includes spotting opportunities with businesses like yours. And the type of funding that's available from HNWIs can be relatively stable – not least where private equity or other sources are unable to access available funds.

In a lot of cases, a family office strategy may well look to grow the wealth of HWNIs for future generations. As such, any funding could form part of longer-term investments that provide the recipient with more flexibility. And it's always the needs of the family that are paramount. With institutional investors, for example, any capital could be based on much stricter targets.

Of course, your business may need to suit a certain profile to receive investment from a family office. If that's not the case, don't worry. There are many other options. Contact us today and let our experts shine a light on our alternative funding solutions.

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    Family Office FAQs

    What is the structure of a family office?

    A family office structure can take on different forms. It'll usually be based on its size and the needs of the family in question. It can start off being a one-person operation, for example – a personal assistant to take charge of everything.

    After that, it scales up to a full-blown, multi-staff operation with various levels of expertise.

    In the largest family offices, the structure can be like any other private company. There can be CEOs, CFOs, CIOs, and more. It all depends on what the aims of the office are.

    As well as the personnel, there are tax and legal structures that need to be put in place. This is to cover the control of the family's assets, as well as to manage the various investment and tax considerations that can form part of wealth planning.

    How to set up a family office in the UK

    HNWIs and their families must have the answers to some key questions before setting up their own family office in the UK. The same applies to anywhere else in the world, for that matter.

    First, there's a need to think about the work involved. Is it worth having in-house resource if a third-party firm can help? Second, what level of knowledge is needed? If a family is looking for investment advice, then it makes sense to hire an expert in that field.

    In essence, however, the process of creating a family office is much like any other business. As a private company in itself, it needs a clear structure and leadership team among others.

    What are the benefits of family office investment in my business?

    For some businesses, it's not hard to see why family office investment might seem appealing.

    First, it's a source of funding that isn't reliant on a good credit score. And it offers similar levels of flexibility as equity or debt financing. For newer companies or those with high growth potential, it's a route that can pay dividends.

    Family office investment could also be a more stable, longer-term option. A family office will be free from external bias – only reflecting the needs of the family. So, any decision to invest in a business like yours is taken with the aim of attracting returns over a longer period.

    And then there's the question of what else a family office can bring apart from funding. For any HNWIs that know a sector inside out, their insight can be really useful to a younger business in the early stages of its lifecycle. And that insight can lead to strong, continued growth.

    How much funding can I attract from a family office?

    You could technically attract as much funding as you need from a family office. That's especially the case if what you do is aligned with the interests of the family in question. You may find that there will be various factors that will affect how much you could get.

    A successful long-term relationship with a family office could also increase the chances of future investment. And that doesn't even include all the insight and expertise you can learn from too.

    How do I attract family office investment?

    You could do a number of things to boost your chances of receiving family office investment. In the first instance, you need to be doing something well and maybe even unique in a sector. You might even want to play on green or socially conscious matters to tap into a family's interests.

    After that, making your business look attractive can be as simple as ensuring all your books are in order. Or you could prepare a business case that highlights your growth potential. You might even consider putting yourself out there as a thought leader and get their attention from afar.

    What if I can't attract family office investment?

    You can do everything right. But that's no guarantee you'll be able to persuade a family office to invest in your business. If that's the case, there's no need to lose faith. There are loads of other commercial funding options that could work just as well for you.

    At Nucleus, we specialise in helping smaller businesses to achieve their ambitions. We do it by providing tailored solutions based on your exact needs. If that sounds like something that can work for you, get in touch – one of our experts is ready and waiting to help.


    BY Jessica Lambert

    4 August, 2022

    3MIN

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