The Evolutionary History of the Modern Family Office

Family offices are by no means a new phenomenon: their origin can be traced back to the major-domos of ancient Rome, which managed the treasuries and servants of large family houses.^[1] Over the course of centuries, major-domos evolved to become family superintendents. As recent as the 18th century, superintendents managed the land and financial holdings of wealthy families through trusts and established fideicommissum, a way of ensuring the intergenerational continuity of family businesses.^[2]

The European business magnates of the Industrial Revolution entrusted their assets to private banks. Concurrently, the same private banking model was brought to the New World by the likes of JP Morgan and JD Rockefeller. The enormous assets of these families prompted the development of the modern family office. To unpack the history of the modern family office, we explore the types of family offices, the affairs they handle and how their evolution has forever altered business practices.

Single-Family Offices and Multi-Family Offices

The early modern family office was born out of necessity. JD Rockefeller’s humble beginnings as an accounting clerk all changed with a $4,000 investment in an oil refinery that ballooned into a large stake in the Standard Oil Company.^[3]It is said that, when faced with the insurmountable task of managing his assets and philanthropy, JD Rockefeller enlisted the services of Frederick T Gates.^[4] Gates established a family office with infrastructure, including professional and administrative staff, that handled everything from wealth management to the needs of family members. By hiring experts, he circumvented the costly practice of contracting larger firms to handle the family’s business affairs. It was one of the first instances of the modern single-family office (SFO).

SFOs developed to serve the needs of high-net-worth families. Fast-forward to 1934, and Rockefeller had, through the family office, endowed his children with trusts comprised of various oil company stocks and real estate holdings.^[5]Those trusts still maintain a bulk of the Rockefeller wealth. As an SFO, the Rockefeller trusts continued to be divided up amongst the next generation following the death of a member of the previous generation. The splintering of that fortune gradually led the family to strategise a new approach to money management.

The titans of business brought about the modern family office and have continued to shape it. Family offices have developed to include multifamily offices (MFOs). Where SFOs were historically reserved to ultra-high-net-worth families with assets in excess of US$100 million, the MFO developed as a way for wealthy families to pool their resources. MFOs are uniquely positioned to leverage the economies of scale to access the same high-calibre advice typically reserved to SFOs.^[6]

The Rockefeller family saw a means to increase their market impact and investment portfolio. In 2018, Rockefeller Capital Management, an MFO, was born. The Rockefeller family office packaged its expertise and services to be delivered through its new MFO. Allowing over 250 other wealthy families to tap into over a century worth of experience has been a boon to those families’ financial futures.^[7] What history has shown is that the impetus to establish an SFO or MFO is based out of meeting the various needs of the family.

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Ever-Evolving Duties of the Family Office

The duties of the family office are often dictated by the needs of the family. Early modern family offices, such as those of the 19th and 20th-century industrialists, were focused on sustaining the family assets and carrying out their philanthropic work. The 1936 founding of the Ford Foundation, along with its mandate to provide resources for public welfare, led to a change in how the family managed its wealth. The social justice work born out of their Gaither Study Committee was an early philanthropic endeavour of the family.^[8] Decades later, the foundation has diversified its mission and board members, hailing from four different continents, which has culminated in making US$500 million in grants internationally each year.^[9]

Just as the philanthropic mission of the modern family office has changed, so too have the potential duties of the family office. They have expanded to include a variety of boutique services. The family office has also become involved with major milestone expenses for individual family members, such as education funding and real estate acquisition.^[10] Handling a family’s succession has also fallen under the purview of some family offices. Such offices have structured the family council, often made up of family members and advisors, whose duties include succession planning. When there is an impending generational transition, those family offices have overseen the process.

There has also been a rise in family offices serving as the organisational memory of its members. Part of the expansion of the family office is a result of its intergenerational knowledge. As the family office becomes more prominent, so too will its impact on the future of the business.

Family Offices Influencing Business Evolution

The utility of the family office has recently increased its popularity amongst the ultra-wealthy. A 2019 report developed by UBS and Campden Research shows that 68 of the 360 family offices surveyed were established in 2000 or later.^[11]The rise in family offices is in direct correlation with the rapid increase in global wealth, in large part a result of Industry 4.0.

Whether it be in funds or the start-ups themselves, family offices have been inextricably linked to many advancements of Industry 4.0. Next-generation family members have been part of the driving force behind this new trend in family offices. A recent global survey conducted by Silicon Valley Bank suggests that as many as three-quarters of family offices have invested directly in start-ups.^[12] Additionally, they are part of a growing interest in environmental, social impact and governance investing.^[13] It is clear that the proliferation of family offices and the diversification of investments are a portent of changes in the market to come.

References

_[1]_{Single Family Offices: The art of effective wealth management}

_[2] Ibid.

_[3]_{Rockefeller Family Tries to Keep A Vast Fortune From Dissipating}

_[4]_{More information on Family Offices}

_[5]_{Rockefeller Family Tries to Keep A Vast Fortune From Dissipating}

_[6]_{The Emergence of the Family Office}

_[7]_{The Rise Of The Family Office: Where Do They Go Beyond 2019?}

_[8]_{Our Origins, Ford Foundation}

_[9] Ibid.

_[10]_{Introduction to Family Offices}

_[11]_{The Emergence of the Family Office}_or_{Family Offices: Global Landscape and Key Trends}