Given that it typically costs at least US$1 million per year to run a full-service family office, the minimum assets required to make the model viable is generally at least US$100 million, but they can work at lower levels, suggests Credit Suisse Group AG.
The firm published a new white paper today that looks at the growth of family offices to serve the asset management needs of the very wealthy, and aims to identify best practices for running this sort of operation. The paper notes that 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.”
Although it’s difficult to estimate how many family offices there are because of the variety of models, and the lack of a single definition of what constitutes a family office, in the paper Credit Suisse estimates that there are at least 3,000 single family offices in existence globally. And it says at least half of these were set up in the last 15 years.
“The increasing concentration of wealth held by very wealthy families and rising globalization are fueling their growth,” it says. “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 — despite the plethora of large family businesses in these economies.”
Although there is no standard definition of a family office, the paper says that “anecdotal evidence suggests that a full-service family office will cost a minimum of US$1 million a year to run, and in many cases, much more.” This, in turn, implies that for a family office to be viable, a family should be worth between US$100 million and US$500 million, it says.
Yet it also says that a family office can be set up with less than US$100 million in assets, but the range of services it provides will probably be more limited. For example, the paper reports that family offices typically have operating costs of between 30 and 120 basis points. “Offices with the lowest running costs focus primarily on a limited number of wealth management services, such as handling real estate holdings. However, there seems to be no strong correlation between the size of assets under management and the operating costs,” it says.
Indeed, the paper suggests that it’s more meaningful to “calculate the minimum wealth under management in the light of return expectations and targets, 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.”
The white paper goes on to examine what a family office does, and the most effective structures and processes for reaching its objectives.
The firm launched the paper today to coincide with its first conference on family offices in Asia, which was held in Hong Kong. The firm says it organized the event in response to a growing demand from emerging Asian single family offices (SFO) for insight into best practices for these platforms.
In the paper, it estimates that about 25% of the world’s super rich (those with more than US$100 million in assets) is located in Asia, yet it notes that only about 3% of existing global SFOs are in the region. However, it says that it is now seeing the number and level of sophistication of SFOs in the region growing rapidly.