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How to establish the right family office

9 March 2020

Charlotte Thorne, Founding Partner at Capital Generation Partners

Many successful family business owners choose to establish a family office to manage their affairs and do so thinking their experience has taught them the formula for success.

However, in practice, there are important and often-overlooked distinctions between a family office and a family business and success in one area doesn’t necessarily guarantee success in another. Experience suggests that it not uncommon for family offices to open and close within two years as the costs are so high. Sharing costs with another family doesn’t necessarily work either – competing priorities are rarely easy to manage.

CapGen’s Managing Partner, Khaled Said, has personal experience of managing both a family business and a family office. The three founding partners, Khaled Said, Ian Barnard and Charlotte Thorne first worked together at Khaled’s family office before establishing CapGen in 2007. Here we share the lessons they learnt and how these have shaped our UHNW investment proposition.

What a family office is for

The key point is that a family office is not just an extension of a family’s business. The raison d’être for a family business is fundamentally different to that of the family office; the former could be characterised as a ‘get rich’ strategy, and the latter ‘stay rich’. Success looks very different in each sphere, which means that the type of people and incentives you need are very different.

How to achieve success within a family office

Family offices need a pre-defined strategy, or purpose. Families need to consider the strategy of their family office in the same way they consider the strategy of their family business. Without understanding what the money is for and how it will serve them, it will be almost impossible to deliver the objectives. The more detailed, clear and focussed the strategy, the higher its chances of success. The most sophisticated family offices are those mindful enough to know that they can’t do it all and they outsource where necessary.

This trend for outsourcing originated across the Atlantic and is a CapGen pillar. A family office should concentrate on one or two areas and outsource the rest. But, which bits do you keep and which do you outsource?

How to outsource

We believe that a family office is an asset management business, but not necessarily in an ‘investment management’ sense. It’s an office which manages a family’s real assets: houses, cars, planes, art. The goods that are expensive when not run properly and have to be looked after carefully to maintain their value. These items require tight cost control and the skills of an accountant: the first hire of any family office.

Asset management in this sense should be at the heart of every family office. Investment management, by contrast, is not essential to a successful family office.

Investment management encompasses many different asset classes and disciplines from real estate management to hedge fund selection and it is unlikely that one family will have the skill or resources to insource all of that. The solution therefore is to identify which, if any, parts of the investment puzzle should remain in house – driven perhaps by family interest or heritage and to outsource the rest. CapGen was founded to serve the needs of family offices seeking to outsource all or part of their investment management. We specialise in investment management rather than structuring, tax advice or general consultancy. This allows us the freedom to build completely bespoke, diversified, ‘stay rich’ portfolios which cater to clients’ needs perfectly.

A successful family office begins with a clear strategy. That strategy would be wise to begin with a trusted accountant and to end with a carefully selected group of outsourced advisers who can support the family with all of their investment needs.

 

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