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Factors to consider when deciding on setting up a Family Office

family office wealth structuring

People often ask how big the wealth should be for a Family Office to make sense. In the EY Family Office Guide, written some time ago, the team decided that a level of USD 200m would be the minimum for a Family Office. But other sources state higher values around for example USD 500m. A decision simply based on the amount, however, does not make sense for the following reasons:

Every entrepreneurial family has specific and very individual requirements and demands for a Family Office. To start a Family Office with a relatively small amount of wealth might make a lot of sense, if the family is expecting a much larger cash event in the future. Such an approach enables the family to test the workings of the Family Office over time and adjust the structure and operations. Also the family can practice the governance procedures and optimise them prior to the family and the wealth becoming much bigger.

Besides the absolute amount of the wealth it is also important to consider the heterogeneity of the assets. The more diverse the asset base, the more sensible it may be to start a family office in order to cover the very diverse issues that come with increased complexity. The funding structure is another important criterion. For example real estate assets may be invested in not only with equity, but also debt products or mezzanine. Or the family decides to do real estate development projects by itself, significantly increasing the risk attached to such investments.

The staffing of the Family Office is also important in considering the set-up of a Family Office. In many cases – particularly when the original family business was sold – the Family Office provides employment for some or all family members and insures the identification of the family with the collectively owned wealth. This assumes that the individuals are sufficiently knowledgeable in the subjects covered by the office and can contribute to the success of the operations. Family investment holdings in this sense are always like Family Offices as they manage the bulk of the family wealth, alongside possibly offering additional individual services to the family. Modern concepts like a virtual family office hardly require any staff at all.

The services that a Family Office can deliver vary widely according to the specific needs of a given family. Clearly there is no absolute amount of wealth above which a Family Office makes sense – it depends on many factors as illustrated above.