Friday, May 23, 2008

How Richest Familes Manage Their Wealth ?

For many of the world's richest families, SFOs -- Single Family Offices -- play an essential role in their investment strategy. SFOs manage the family financial portfolio and often provide other services, such as handling children's college applications, hiring domestic staff or managing the family fleet of jets. About 1,000 SFOs are in operation around the world catering to families with a least $100 million in assets. More than half the SFOs are managing family wealth of more than $1 billion.

Up until now, little has been known about these powerful entities. New research, however, shows that they play an important role in managing major investment portfolios, guiding significant philanthropic endeavors and maintaining a core set of values across generations of extremely wealthy families.

Stacy M. Dutton, former president and chief investment officer of the Manhattan-based Park Agency, the successor company to the SFO Joseph P. Kennedy Enterprises, says family offices are trending toward more emphasis on managing money than managing the family compound.

Amit, academic director of the Wharton Global Family Alliance (GFA) says a family needs at least $100 million in assets to make it worthwhile to establish an SFO, which typically costs about $3 million a year to operate. Individuals and other groups of families often form similar entities known as multi-family offices (MFOs) which, according to Amit, number in the thousands.

From interviews, the GFA research found that other common reasons for having a SFO include freedom of career choice for family members; cost effective money management; stable, controlled and scalable asset management; development of trustworthy and loyal employees, and cheaper document administration.

Amit says the new research is just a first step in gaining a better understanding of how family wealth is managed. GFA plans to continue its studies and hopes to examine the financial performance of families with SFOs against the investment performance of private banks or other investment professionals. "The vast majority of businesses around the world are indeed family businesses, and there are a number of distinguishing aspects that make family firms unique, raising issues that we as academics must look at, such as succession and governance," says Amit.

Indeed, the link between the family and the family business deserves more interest. Some lessons to manage personal wealth can always be derived from them.

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