While some single-family offices can readily be seen, most, in all likelihood, cannot. For example, a percentage of single-family offices are part of family office associations; family members attend family office conferences and conspicuously reach out to their super-rich peers to co-invest and learn best practices. On the other hand, many single-family offices do everything they can to obscure their existence.
For some single-family offices, being visible brings unwanted notoriety to the entity and, more importantly, to the super-rich. For many of them, hiding is not so much a matter of not waving their hands as of not wanting to stand out.
What is clear is that although a growing number of super-rich families are establishing single-family offices, most are taking steps to stay hard to identify. So, even though the number of single-family offices and the wealth they control is booming, all estimates of the size of this world are understatements.
These single-family offices keep a shallow or non-existent profile, making some single-family offices impossible to find or recognize. This intensifies their control over their environment, including their ability to remain anonymous and get preferential agreements with providers, which is a prime objective for most super-rich families.
Single-family offices are achieving these ends in several ways. The two most prominent approaches are false flag business dealings and the use of retained intermediaries.
False Flags Business Dealings
Quite a number of senior executives actively cloak their single-family offices, usually on a case-by-case basis. One common way they do this is by engaging in false flag business dealings. This involves creating and using various corporate structures providing legal and perceptual barriers between single-family offices, wealthy families, and the people they negotiate with.
Using false flag arrangements is often a powerful way for senior management to create bargaining advantages. In delicate situations where high levels of discretion are mandatory, these arrangements produce extremely potent competitive benefits.
A scenario where false flags are most common is when single-family offices invest in private companies. To begin with, a pronounced and growing trend is that single-family offices are increasingly directly investing in privately held companies. Sometimes, they teem with other single-family offices in the form of “club deals.” At the same time, an increasing number of single-family offices are forming consortiums to invest in private companies. While a substantial percentage of single-family offices invest in privately held companies, many do so secretly at the start.
Consider the following more prevalent scenario: as more single-family offices participate in conclaves where entrepreneurs congregate, they join these gatherings without disclosing that they are single-family offices. It is increasingly the case that some single-family offices are participating in business owner mastermind and CEO groups.
One of the primary reasons they join these groups is to meet successful business owners who could benefit from the money, expertise, and connections their single-family offices could provide. By not sharing that they are single-family offices, they can often get a better read on the business owners and their businesses and usually structure a better deal for themselves.
Retained Intermediaries
Another strategy single-family offices use to obscure their presence is the use of retained intermediaries. These cut-outs and talent spotters are individuals the single-family offices employ to identify and qualify providers and opportunities. They are often also relied on to help manage negotiations with other parties. They can do their due diligence only after the professionals have been selected and informed.
Retained intermediaries come from various backgrounds, but most tend to be professionals with extensive high-net-worth experience. They must also have extensive networks they can leverage. The nature of their networks plays a significant role in their engagement by single-family offices (Disclaimer: Russ periodically works as a retained intermediary for some single-family offices and super-rich families to help them identify and negotiate with various private wealth industry professionals worldwide).
Many professionals need a little practice to work effectively with retained intermediaries. They have very precise agendas, and before they share them, they make concerted efforts to ensure they are speaking with the right professional for what they are looking for.
Retained intermediaries have been around for quite some time in single-family offices, but what is slowly changing is that not too long ago, they worked only for the top 5% of single-family offices. Today, 20% to 30% of single-family offices use retained intermediaries. While they add some cost to the process, they deliver superior results. Consequently, this trend is likely to escalate going forward.
From the perspective of professionals working with retained intermediaries, moving things along is very hard and, in many cases, impossible. It is all in the hands of the retained intermediary, who is likely dealing with all sorts of issues. The only practical course of action is to be amazingly responsive and patient.
For example, in one situation, a provider negotiated with a retained intermediary who then inexplicably vanished. Not knowing who the potential client was and being unable to connect with the retained intermediary, the provider thought the opportunity was lost. However, nearly eight months later, the provider was contacted and informed they were selected.
Jerry D. Prince is the director of Integrated Academy, part of Integrated Partners, a leading financial advisor firm. Russ Alan Prince is a strategist for family offices and the ultra-wealthy. He has co-authored 70 books in the field, including Making Smart Decisions: How Ultra-Wealthy Families Get Superior Wealth Planning Results.