A family usually needs assets of at least $500 million to set up a full-service family office that oversees investments, consultants say. Those with more than $100 million may also be able to afford their own offices if they outsource some services. Around the world, there are at least 3,000 outfits managing the money of a single clan, and about half were set up in the past 15 years, according to Ernst & Young. By comparison, Prequin tracks more than 8,000 hedge fund companies.
Figures on how many people have joined family offices from hedge funds in the past year are difficult to obtain, because family offices are extremely private. They usually don’t even have a website, nor do they advertise jobs or publicize hires. Many of the firms’ names are even veiled to protect the source of the fortune behind them. Branthover says she’s received as many as 30 inquiries this year from hedge fund employees looking for jobs at family offices. That compares with about five in previous years, she says. Competition for openings has intensified even as more family offices have been created, says Michael Castine of recruiting company Ridgeway Partners, who places executives at family offices, asset managers, and wealth managers. Hedge fund candidates won’t have an easy time jumping to family shops as their industry contracts, because so few seats are available, he says.
“Family offices, for the most part, are opportunity-agnostic and will seek alpha anywhere and everywhere.”
Family offices that operate like boutique investment companies should feel familiar to hedge fund expats. Many families want to take long-term bets and protect against losses, for instance. They’re also increasingly seeking ways to team up on deals with endowments, foundations, and other institutional investors. “That’s really morphing the industry and blurring the lines between hedge funds, private equity, and family offices,” says Huizenga’s Meagher.
Family offices are less constrained when it comes to focus and liquidity, as their aim is long-term wealth production, according to Robert Discolo, a chartered financial adviser who recently joined the $1 billion multifamily office River Partners Capital Management as CEO and CIO. “As hedge funds got larger and more institutionalized, it was much more difficult to find opportunities, because they had to operate within narrow investment and liquidity parameters to satisfy their client base,” says Discolo, who previously invested in hedge funds and private equity for bank Julius Baer, AIG, and Permal. “Family offices, for the most part, are opportunity-agnostic and will seek alpha anywhere and everywhere.”
An appealing aspect of family offices, according to consultants, is that they look a lot like hedge funds in the glory days of the 1980s and ’90s: secretive and lightly regulated. Family offices in the U.S. typically don’t even have to register with the Securities and Exchange Commission, let alone disclose the amount they hold as required for other money managers with outside investors.
Meagher’s daily routine is similar to his previous one at UBS O’Connor. His mornings at Huizenga Capital Management, in an office building near leafy cul-de-sacs and an outdoor shopping mall in Oak Brook, Ill., begin at the on-site gym, where he hits the treadmill and lifts weights. Before the markets open in New York, Meagher meets with his six investment team colleagues for an outlook on the day’s activities. Lunch is catered. Most days he works until late in the evening, when he heads home to his family.
One big difference from his hedge fund days is the firm’s small size, which means everyone is in constant contact with each other—and with the owner of the firm, Peter, 77, who’s a regular presence in the office. Huizenga started the family office in 1990 after decades of helping his cousin, Wayne, build Waste Management into one of the biggest companies in the U.S. through a series of acquisitions. The family was also an early and significant investor in the video-rental company Blockbuster and other ventures. “They’re investors at heart,” Meagher says.
Meagher wasn’t shopping for a job at other family offices when the Huizenga opportunity presented itself, he says. Since his hire, he’s helped pool money from other families with Huizenga to create a fund-of-funds-type vehicle to invest with five to eight money managers focusing on stressed and distressed opportunities.
That’s exactly what Huizenga Capital Management says it wants Meagher to be doing. “One of the things that family offices have that’s very valuable is a network,” says President David Bradley, 48, who’s also Peter’s son-in-law. “We created the position because we literally have hundreds of relationships, and we wanted somebody that would help us better manage them.” He says the direct investment activity has delivered higher returns and greater tax efficiency because the family has been able to hold on to stakes for longer than they might have in some funds. “We have lots of experience that often can add value to companies in which we can invest or manage,” says Bradley, having made “significant” investments in health care, finance, technology, and consumer-focused businesses.