Here’s an interesting question, what is an embedded family office and how many are there? OK, it’s easy to answer the first part, but the second part is much more difficult. But let’s give it a go.
An embedded family office exists within a business owned by an individual, or family. So, a family or individual managers their private assets alongside their business – this is an embedded family office. Usually this is done through the finance department of the business, and is overseen by the chief finance officer and his or her’s department’s employees. They are entrusted with the family office duties as well as the finances of the company.
Billions of dollars are managed in this way, and such structures are probably more common than thought, particularly among companies in the Middle East, Asia and Latin America, where separating private assets into a standalone family office is still in its infancy. But it’s probably also common among private businesses in Europe and North America, at least more than might be thought to be the case.
Sometimes embedded family offices grow out of the blurring of what constitutes the assets of the business and the assets of the company. Wealth managers say this blurring is a challenge to deal with and they add that it’s very common in private companies. But, if wealth managers are perplexed by these structures, spare a thought for the finance department of these businesses where embedded family offices exist – they have to not only manage the finances of the company, but also those of the family/individual. All this might entail them having a double workload.
But how many embedded family offices are there? Bloomberg reckons there’s around 6,000 companies in the world with at least $1 billion in annual revenues. There’s no figure Family Capital can track down on how many companies there are with annual revenues of between $500 million and $1 billion, but it must be at least twice the number of those with revenues of $1 billion-plus. So, assuming that to be the case, it gives us a figure of at least 18,000 companies with revenues of $500 million-plus.
Out of those, at least a half are probably privately-owned, so around 9,000. Let’s say that out of the privately-owned ones, at least 4,000 have some independent family-office arrangement, and/or use a wealth manager for all their private asset management. That leaves 5,000 that don’t. Of course, it’s impossible to calculate a reliable figure, but let’s say for the sake of argument that around 3,000 of these have some form of embedded family office structure. So, there’s your figure – a complete guesstimate, but, if there is anything to say factually about the numbers of embedded family offices, there’s likely to be a lot of them.