Family office: Difference between revisions

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 }}Another one of those things, like [[LIBOR]] and [[supply chain financing]] that seems so ordinary, unfussy, sensible and harmless; that, in its way, points up the holy terror of [[non-linear]] interactions in financial markets.
+===When wealthy families attack ... each other===
+Normal investment funds — even [[hedge fund]]s — have an element of arm’s length about them, in that there are parties involved who entrust each other with grave responsibilities, large sums of money and so on, and if any of them are unnecessarily cavalier things — and more to the point, regulators — can get ugly fast. Regulators in financial services care about the fragile interests of the poor, defenceless super-rich; they presume that grizzled old [[broker-dealer]]s who interact with them can look after themselves. This has not always proven to the be the case, but still.
-A family office is a [[Special purpose vehicle|vehicle]] established by a [[ultra high net worth]] investor to manage her own, and her family’s money. How the other half lives, huh? These people move in circles mere mortals cannot imagine: they have enough dough to employ their own financial wizards to work it to their great advantage. Like gulls around a seaside chippie, the [[rentsmith]]s soon arrive. An office manager, some [[operations]] people, a [[general counsel]], and before you know it they are have a full-scale paramilitary organisation.
+Investors are generally diverse, and different people to the investment managers, and for everyone’s peace of mind there are {{strike|rentseekers|agents}} employed make sure things are done properly. Custodians, depositaries, fund administrator types who can supervise [[subscription]]s and [[redemption]]s, manage account movements and calculate [[NAV]]s; all of whom will be distinct from the investment manager and for that matter the fund directors themselves, each of whom will likely have compliance and operations teams, to ensure everything is done as it is meant to be, and that the auditor can easily sign off the accounts.
-At one level, this is harmless, dull, dreary: well, not ''dreary'', exactly — it’s hard not to be a ''bit'' glamorous when you have a superyacht in Monte Carlo and your own Island in the Caribbean — but for a [[prime broker]] these are like [[hedge fund]]s, only smaller — ''usually'' smaller; not always — and with no outside investors making them all the more harmless: no [[ERISA]] money, no — well, limited — [[AML]] worries, no sudden [[NAV]] drops on account of precipitate withdrawals from dissatisfied investors. Just steady sailing from a super wealthy fellow running her own money, and therefore well-incentivised not to throw it around.
+A family office is a [[Special purpose vehicle|vehicle]] established by a [[ultra high net worth]] investor to manage her own, her family’s and on occasion her friends’ money. How the other half lives, huh? These people move in circles mere mortals cannot imagine: they have enough dough to employ their own financial wizards to work it to their great advantage. Like gulls around a seaside chippie, the [[rentsmith]]s soon arrive. An office manager, some [[operations]] people, a [[general counsel]], and before you know it they are have a full-scale paramilitary organisation.
+But it isn’t quite the same if it is all in the family. These gatekeeper roles are a little bit more “optical”, seeing as if anything goes ''[[tetas arriba]]'', there aren’t any outside investors who might complain. So you might see some of these roles doubling up: the same guy who invests 50% of the fund is also director of the fund company, and [[CIO]] of the [[investment manager]].
+Now blood is thicker than water, and everything, but this only takes you so far, and when rich families do fall out, it can be spicy. This can put external counterparties in an awkward position: You may have a $500m portfolio, and discover that Bob is no longer talking to Fred, they don’t agree on investment strategy, and while common sense would recommend that, for the purpose of not losing even more money they ''should'' talk to each other, they won’t. This leaves you in an invidious position. To whom do you listen? What can you do? The cold logic of the situation says, “close the relationship out” — this is prudent, but may upset the seventh wealthiest man in Azerbaijan.
+===The Voldemort factor===
+Still, internecine squabbles don’t happen ''that'' often, and as long as they don’t, at one level, GFOs are harmless, dull and dreary: well, not ''dreary'', exactly — it’s hard not to be a ''bit'' glamorous when you have a superyacht in Monte Carlo and your own Island in the Caribbean — but for a [[prime broker]] these are like [[hedge fund]]s, only smaller — ''usually'' smaller; not always — and with no outside investors making them all the more harmless: no [[ERISA]] money, no — well, limited — [[AML]] worries, no sudden [[NAV]] drops on account of precipitate withdrawals from dissatisfied investors. Just steady sailing from a super wealthy fellow running her own money, and therefore well-incentivised not to throw it around.
 All that passed for conventional wisdom until [[Voldemort|late March 2021]].