Few family offices get much bigger than MSD Capital. The private investment office of Michael Dell, the man behind the huge computer group Dell Inc., employs more than 100 people, has offices in New York, Los Angeles and London, and manages many billions of dollars of the Dell family fortune.
Effectively, it’s become a very complex and sophisticated organisation dealing with not just investments, but also a whole host other family office issues. In fact, MSD Capital even employs a personal trainer.
But are all family offices managing many billions of dollars like MSD Capital when it comes to their level of professionalism? Have mid to large family offices evolved into smoothly running and sophisticated institutions that given their responsibilities and managerial requirements they probably should have?
Bill Woodson doesn’t think so. The head of the North American family office group for Citi reckons professionalism is often lacking at family offices. “Complexity doesn't necessarily equal sophistication for family offices,” he says. “There are many family offices that deal with issues as and when they come up and they're not being very effective at getting in front of them.”
Although the world of family offices has expanded greatly in the last 20 years, this hasn’t always translated into improvements in how they are managed. And Woodson says that it doesn’t matter how big they are, a lack of professionalism can be found even among the family offices managing many billions of dollars, whereas smaller ones can often be highly sophisticated in how they manage the financial and other requirements of a family.
One thing Woodson and his colleague Edward Marshall, a director in the bank’s global family office group, would say it that family offices have certainly become more complicated.
"Family offices are complicated because of the myriad of issues they have to take on and these range from straightforward finance and accounting to more sophisticated and niche areas such as managing personal residences, cyber and personal security, philanthropy, private aviation, etc,” says Marshall.
Woodson and Marshall say a mid to large-sized family office might employ up to 40 or more people and they will also have many external relationships. The diagram below shows a typical structure of a mid to large-sized family office, which illustrates well how many functions they typically oversee. "It's the complexity that comes with managing not just the internal staff, but all external professionals and support people that work with family offices," says Woodson.
Big - a family office organogram
Of course, like MSD Capital, there are many family offices that have mastered a high level of professionalism. Indeed, the ever-evolving ecosystem around the family office world is helping considerably in the quest for greater professionalism, say Woodson and Marshall.
"Because of the resources that are available to these families in terms of expertise, the calibre of professionals that are interested in working for family offices, the growing support networks, and increasing collaboration among family office individuals, you're starting to see them become more sophisticated more quickly than in the past,”says Marshall.
And perhaps that greater level of sophistication is best observed through the investment function and the recruitment of investment professionals.
"The industry that provided certain investment management solutions to family offices are increasingly joining them and so you're finding that traders who used to work at a hedge fund are choosing to join a family office to help it create a strategy that can then be marketed down the road by the family office,” says Woodson. “In these cases, the family office is interested because it becomes the seed investor and ultimately becomes an owner of a proportion of the general partnership. You didn't see that in the past."
Citi’s Woodson and Marshall have recently written a “blueprint” for family offices, entitled: Organizational Design, Strategic Leadership, and Governance Insights for Family Offices. The report delves into many of the issues family offices face around organisation, leadership and more.