“Success is not final. Failure is not fatal. It is the courage to continue that counts."
Introduction: How Steve Jobs Created A Family Office
If you are trying to understand what is a single or multi-family office is and why they matter in the current 2019 global financial markets, you've come to the right place.
To give you a practical, real life example of a single family office, you need to look no further than Steve Jobs, the American founder of Apple Computer and Pixar, who created a "first generation family office" based on his genius, drive, and creativity. When Steve Jobs died in 2011 due to complications from a relapse of his previously treated islet-cell neuroendocrine pancreatic cancer, his wife, Laurene Powell Jobs, inherited $17.6 billion from the Stephen P. Jobs Trust to become the fourth-richest woman in the world and the 49th wealthiest person on the 2017 Forbes annual list of world billionaires.
Today, Laurene Powell Jobs family is the richest woman in Silicon Valley, the largest shareholder in Disney, and uses her family office to promote social causes and philanthropy that are the heart of her family's values and vision. Steve Jobs' family office is one example of why you need to sit up and become intelligent about global family offices, their place in the 17 SDGs, capital stack of world-wide deals, and the global impact and change they are making in our global economy. At Privos, we believe that the legacy of Steve Jobs and his family office embodies the hard driving, creative brilliance, and intense entrepreneurism that we strive to replicate at our firm every day.
Or, when you have time, we ask that you watch the following short video clip of Sir Johnathan "Jony" Ivy, Apple's world famous Chief Design Officer (CDO), giving his moving eulogy for Steve Jobs, his best friend, during Steve Jobs' Memorial Service that took place on Apple's campus in Cupertino, California. Jony Ivy's short, seven minute eulogy is one of the most powerful, uplifting, joyful, and inspirational tributes to a best friend that you will ever listen to in your lifetime. Jony Ivy's short seven minute eulogy in which he describes the "bold, crazy and magnificent" ideas that Steve Jobs inspired embodies the vision and mission that we hold dear at our firm. You can view the eulogy here: https://www.youtube.com/watch?v=GnGI76__sSA
What is a Family Office & Why You Should Care
By way of background, family offices are professional firms dedicated to managing the personal fortunes and lives of very wealthy families. The first family offices trace their lineage back to the Roman major domus (head of the house) and the Medieval major-domo (chief steward). The first modern family offices were born around the mid-19th century, with the birth of private banks and trust companies that were created to help the entrepreneurs of the Industrial Revolution manage their wealth. The mandate then - as it is today - is to protect and grow a family's investments - their companies, businesses, funds, foundations, and philanthropic activities - and assets for both current and subsequent generations.
Generally, a family office is a private company, onshore or offshore, that manages the investments and trusts for a single family office, a multi-family office, or a sovereign royal family. The company can be based anywhere in the world. There are several types of family offices in the broadest sense: (1) a single family office, sometimes referred to as a SFO; (2) a multi-family office, also knows as a MFO; and (3) sovereign royal family offices. Sometimes a single family office is described as an ultra high net worth individual (UHNW) or (UHNWI). For example, Silicon Valley and tech-related family offices that you may (or may not) have heard of today include: Vulcan (Paul Allen), Iconiq Capital (Mark Zuckerberg), Bayshore Global Management (Sergey Brin), Cascade Investment (Bill Gates), Hillspire (Eric Schmidt), Clarium (Peter Thiel).
Family offices often provide family management services, which includes family governance, financial and investment education, philanthropy coordination, and succession planning. Typically, a family office's net worth exceeds $100 million albeit there is no set rule about the AUM of a family to quality as a family office. Large global banks, such as Morgan Stanley, Credit Suisse, Goldman Sachs, HSBC, and others, have dedicated “Global Family Office” teams of professionals to cater and banker the world’s elite family office. Then there are the high net worth investors (HNWI), or those with over $30 million or more to invest. While not family offices, there are over 128,000 high net worth individuals in the world whose wealth accounting for over $19 trillion of assets according to a recent Capgemini and RBC Wealth Management Survey; their fortunes accounted for 34.6 percent held by all millionaires according to Bloomberg.com. Many of these high net worth investors become family offices; however, the majority of high net worths actually lose most of their fortunes by the time the third generation of their family takes the reins.
Family offices are the last outpost of private capital in the world. Privos Capital estimates that today there are well over 22,000 family offices and HNWIs globally managing over $25 trillion of assets, a truly staggering amount of money. Compare $25 trillion for global private wealth to $3 trillion for private equity and venture capital and only $2.7 trillion for hedge fund AUM: clearly global family offices and UHNWIs have AUM approximately EIGHT time that of private equity and venture, asset classes who traditionally get the most play in the financial press. Further, BRIC / BRICS, N-11, and the 37 Frontier Countries of the Emerging Markets are adding family offices in record number every year, by passing the number of Western or developed family offices in record number. Anyone who has visited recently Sao Paulo, Brazil, the financial center of Latin American, and looked up in the sky at the largest fleet of private helicopters in the world, witnessed Qatari private banks opening offices in London, or Chinese family offices engaging the western capital markets and listing companies on NASDAQ, NYSE, FTSE, or AIM, can appreciate the explosion of wealth in the BRICS, Frontier and Emerging Markets.
Today, family offices - those families with whom Privos partners globally - typically take the form of a highly private single family office, multi-family, or a royal family office, as you will typically see in the Middle East. Most of our partners view their SFO as mainly a private investment office. Privos works with the private investment offices of our family office partners. Regarding governance, our partners tend to have fewer committees than typical LP investors and they provide frequent and detailed information to family stakeholders. Multi-family offices have a higher percentage of board of directors, investment and audit committees compared to single family offices.
Our family office partners continue to run passionately and aggressively their core operating businesses, funds, and foundations, while other families have had a "liquidity event" and are now focused only on managing investment assets. No family office is similar to another; they are all unique in their own particular way. Typically, our partners are involved in operating businesses and are the majority stakeholders of the holding company. The majority of our partners world-wide locate their family offices not in tax havens but in a global financial center where they can collaborate and network with top investment experts who help them aggressively grow the family fortune, fund, or portfolio company. Family offices pay tax, create jobs, and opportunities for their partners, employees, and stakeholders.
A typical family office is the most concerned with trans-generational wealth management, raising capital, forming joint ventures with other family offices, consolidating accounting, tax, legal and estate planning services not unlike a typical private investment office. Family offices also spend a considerable amount of time on asset allocation and investing in equities, fixed income, hedge funds, private equity, real estate, real assets (oil, gas, timber, commodities), art collection, wine cellar, etc. They are truly global citizens, doing deals 24/7 in all time zones world-wide.