It is often said that the super-rich—those worth $500 million or more—constitute “smart money.” After evaluating the returns of single-family offices, it is evident that the sophisticated ones are indeed doing an exceptional job of growing the family fortune. A number of different and often overlapping factors are producing this stellar performance.
One factor contributing to their achievements is the use of tax mitigation strategies. These range in complexity from those that are simpler and more straightforward, such as private placement life insurance, to more esoteric strategies, such as cross-border tax arbitrage. It is very important to determine the viability of a particular tax strategy and whether it fits the unique circumstances of the ultra-affluent family.
Another trait underlying family offices that perform well is the commitment of their professionals. Angelo Robles, founder and CEO of the Family Office Association and author of "Effective Family Office: Best Practices and Beyond," said, “We’re seeing the better-performing single-family offices implement compensation arrangements that promote and strongly reward results while managing investment risk. These family offices are highly effective in bringing in top-notch investment talent as well as being highly motivating. It’s all about sharing in the upside, and the arrangement works very much like hedge fund compensation, except when investment don’t perform everyone loses together.”
A third contributing factor to the investment proficiencies of sophisticated single-family offices is their interest in a wide range of investment possibilities. “The family offices and wealthy people I know are all looking far and wide for outstanding investment opportunities," said Peter Sasaki, managing member of CGS Associates. "They’re not restricted to traditional markets. For example, private credit combined with smart wealth planning can deliver solid, steady returns. ... Also, investments in privately held companies are proving to be a tremendous source of financial upside. Often family offices are either investing themselves or as part of club deals or consortiums.”
While not all single-family offices are getting consistent stellar investment returns, a substantial percentage of them are doing astoundingly well. What is very telling is that the factors that are instrumental to their success can be also implemented by less affluent families.
For a variety of reasons, from advances in financial technology to regulatory changes, when it comes to wealth planning—including combining tax strategies with investments—being super-rich is no longer a requirement. This opens the door for many affluent families to use the same strategies as the super-rich. Working with highly talented wealth managers and planners is still a requirement and not many of them are around.
A meaningful number of single-family offices are at the vanguard on investment management due to the adroit integration of tax mitigation strategies, a willingness to pay well for talent and an ability to search out high-potential investments. More and more, the less affluent are able to do the same with comparable superior investment results.