common Family office According to a new study, it costs more than $3 million a year to operate, as competition for talent drives up staffing costs.
According to the JPMorgan Private Bank Global Family Office report released this week, wealthy families are spending anywhere from $1 million to more than $10 million a year to run their family offices, with the average now at $3.2 million. Is. While costs vary widely by asset class, experts say costs are rising across the board as family offices explode in size and number and compete more directly with private equity, hedge funds and venture capital. are
“There is a real war for talent within family offices,” said William Sinclair, US head of JPMorgan Private Bank’s family office practice. “They’re competing for talent against private equity and hedge funds and banks.”
Small family offices certainly cost less. According to the report, which surveyed 190 family offices with average assets of $1.4 billion, family offices that manage less than $500 million spend an average of $1.5 million annually on operating expenses. Family offices between $500 million and $1 billion spend an average of $2.7 million, and those above $1 billion spend an average of $6.1 million. Fifteen percent of family offices spend more than $7 million, while 8% spend more than $10 million.
The biggest cost is staffing, which has become as expensive as family offices. Three times the number in the last five years. Family offices are increasingly competing with each other for senior talent, according to recruiters.
More importantly, family offices are moving more of their investments into alternatives, including private equity, venture capital, real estate and hedge funds. According to a JP Morgan survey, U.S. family offices hold more than 45% of their portfolios in alternatives, compared to 26% for stocks.
As they expand their access to alternatives, they increasingly face direct competition with large private equity firms, venture capital firms and deal advisors to bring in top talent.
“Over the last decade, we’ve seen the professionalization and institutionalization of the family office space,” said Trish Botoff, founder and managing principal of Bott of Consulting, which advises family offices on recruiting and staffing. “They’re building their own investment teams, hiring staff from other investment firms and private equity firms, to have a huge impact on compensation.”
According to a family office survey conducted by Botoff Consulting, 57% of family offices plan to hire more staff in 2024 and nearly half plan to increase their current staff by 5% or more. Experts say the overall salary increase in family offices is between 10% and 20% from 2019 due to strong demand for talent in 2021 and 2022.
According to Botoff, the average compensation for a chief investment officer for a family office with less than $1 billion in assets is about $1 million. The average for a CIO overseeing more than $10 billion is less than $2 million, he said. Botoff said more family offices are adding long-term incentive plans, such as deferred compensation, in addition to their base salary and bonuses to sweeten packages.
Competition is driving up the salaries of even lower-level staff. Botoff said a family office she worked with was hiring a junior analyst who asked for $300,000 a year.
“The Family Office decided to wait a year,” she said.
Competition with private equity firms is becoming particularly costly. As more single-family offices do direct deals, buying stakes directly in private companies, they are trying to attract talent from big private equity firms like KKR, Blackstone and Carlyle.
“That’s the biggest problem,” said Paul Westall, co-founder of family office advisory and recruiting firm Aggress. “Family offices simply cannot compete at the senior level with large PE firms.”
Instead, Westall said, family offices are recruiting middle managers at PE firms and giving them more authority, better access to deals and higher salaries. Family offices are now sometimes giving PE recruiters a “carry” – meaning a share of the profits when sold to a private company – similar to PE firms.
Better pay, access to billionaires and their networks, and the benefit of “not feeling like just a cog in a big wheel” are making family offices more attractive places to work, he said.
“If you look back 15 years ago, family offices were where people retired and had a work-life balance,” he said. “That’s all changed. Now they’re bringing in top talent and paying their own people, and that’s pushed them into competition with big firms and banks.”
Credit : www.cnbc.com
