FAMILY OFFICE DIRECTORY

USER GUIDE
How to Raise Capital from Family

Brought to you by the

Family Offices Group
Copyright notice inserted

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TABLE OF CONTENTS
FORWARD ...................................................................... 4

CHAPTER 1| WHAT IS THE FAMILY OFFICE?

I. DEFINITION AND CONCEPT – THE FAMILY

OFFICE ..................................................................5
II. SINGLE FAMILY OFFICE (SFO) VS. THE
MULTI-FAMILY OFFICE (MFO) .....................12
III. FAMILY OFFICE GROWTH – DOMESTIC AND
ABROAD .............................................................16
IV. FACTORS ENCOURAGING THE GROWTH OF THE
FAMILY OFFICE ................................................ 17
V. TRENDS AFFECTING THE FAMILY OFFICE
INDUSTRY ......................................................... 18

CHAPTER 2 | ASSET ALLOCATION – WHERE THE

RICH ARE INVESTING ................................................ 25

CHAPTER 3 | WORKING WITH AND RAISING

CAPITAL FROM FAMILY OFFICES

I. IMPORTANT THINGS TO NOTE WHEN

MARKETING TO FAMILY OFFICES
II. HOW TO MARKET TO FAMILY OFFICES

CHAPTER 4 | HOW TO OBTAIN FAMILY OFFICE

CONTACT DETAILS

I. FINDING THE RIGHT DATABASE

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 II. OTHER FACTORS TO CONSIDER WHEN
PURCHASING A DATABASE
III. 3 MISTAKES TO AVOID

APPENDIX A – WORKS CITED

APPENDIX B – GLOSSARY OF TERMS

APPENDIX C – WHO IS THE FAMILY OFFICES GROUP?

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FOREWORD
The family office is not a new concept, but it has
proven to create some confusion in the
investments industry. Capital raisers are looking
to have a better understanding of this entity, and
how they can benefit the family office, and vice
versa. A better understanding of the family office
is pivotal to successfully reaching them with any
marketing efforts.

I’ve been around the world, talking about and

providing training on capital raising and
marketing to investors, and have found the family
office space to be one of great interest, and great
opportunity. With the right tactics and tools, a
capital raiser can do very well and be very
successful in the family office space.

With my background in capital raising and

marketing, I wanted to share some of my best tips
here in this quick, easy-to-read guide. I also
wanted to share some information on who the
family office is to assist you in your marketing
ventures.

After consulting many sources from experts

throughout the family office industry, this book is
a culmination of my own experience with the
family office, and what others have found to be
important things to know about the family office.
Take what you need, and utilize some of what we

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offer here to ensure that your marketing efforts
are successful.

Best of luck to you in your capital raising efforts

and I truly hope this book is a great resource for
you.

RICHARD WILSON
Founder, CEO
Family Offices Group
Portland, OR
June, 2011

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CHAPTER 1
WHAT IS A FAMILY OFFICE?
“Family offices are typically viewed as being
somewhat of an enigma.” – Preqin Family
Offices Survey 2010

Definition and Concept – The Family Office

The wealth management industry has many

varying definitions of the family office. They are,
simply put, wealth management firms. They do a
number of things for their clients (the family or
families), and typically have fewer clients than a
normal wealth manager.

This lack of consensus on a definition can likely be

attributed to a number of factors, namely the
changes wealth management has seen over the
past few decades and the fact that no two family
offices are alike.

Though there is no consensus on the definition of

a family office, there is agreement upon the
services they offer. Services normally include
assistance with taxes, estate planning, charitable
giving, foundation formation, and even budget
issues. A family office can also provide wealth
transfer planning, financial record-keeping and
compliance, and client education, among other

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traditional wealth management services (FOX
“Frequently Asked Questions).

According to The Family Office: Advising the

Financial Elite, family offices also provide these
“support services”: family security; concierge
services; medical concierge; philanthropic
advisory; formal family education; managing fine
art and collectibles; and property management
(qtd. in Bloomfield: 3).

And finally, in their recent proposal to define a

family office, the Securities and Exchange
Commission (SEC) notes that:

Family office services typically include

managing securities portfolios, providing
personalized financial, tax, and estate planning
advice, providing accounting services, and
directing charitable giving, in each case to
members of a family. Some family offices even
provide services such as travel planning or
managing a family’s art collection or household
staff. (SEC 3)

The family office may also provide access to a

more sophisticated view of portfolio construction
with the ability to use alternative investments.
Many of the financial services a family office offers
to clients can be outsourced, but it’s the personal
touch and attention to detail that the family craves
and needs that the family office provides.

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The costs associated with managing a family office
are typically higher than utilizing a traditional
wealth management office, the reason being that a
family office is usually run by the family, whereas
a wealth management firm may be managed by a
third party and serve many clients with little
overhead cost per client.

In a family office, however, the family gets more

personal, comprehensive services. For the Journal
of Wealth Management, Jon Carroll, founder of Jon
Carroll and Associates, wrote on the topic of costs
associated with running a family office, noting:

[a] simple but technologically sound family

office should cost about $1 million per year.
That breaks down to roughly $750,000 for
compensation of personnel, and $250,000 for
other operating expenses, such as rent and
systems. […]With these kinds of numbers, a
family office probably only makes economic
sense where family assets are greater than
$200 million. (27)

Raphael Amit, a management professor at

Wharton, says “a family needs at least $100
million in assets to make it worthwhile to
establish an SFO, which typically costs about $3
million a year to operate” (Knowledge@Wharton).

Family offices vary in terms of size and, as

aforementioned, the services they offer to their

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clients. These variations make it a challenge to
create a single, concise definition of a family office.

According to Barbara Hauser in her article The

Family Office: Insights into Their Development in
the U.S., a Proposed Prototype, and Advice for
Adaptation in Other Countries for the Journal of
Wealth Management, “[e]very family is different,
and their needs and interests vary considerably.
There is no one perfect design” (16).

The number of family offices in existence is even

in question, though sources like the Family Office
Exchange and the SEC estimate there are
anywhere from 2-3,000 in the US, and roughly
6,000 internationally (SEC 2, and FOX FAQ).
Hauser adds in her article that “[t]he [number of
family offices in operation] seem[s] to change
every month” (15). She also indicates that there is
an estimated 4,000 family offices in the US. (15)

Hauser continues on to say that the definition of a

family office is “vague enough to cover everything
from a one person part-time assistant to a full-
service private trust company with a staff of
dozens. Indeed at the present time a number of
enormous financial institutions are trying to
represent themselves as being a family office also”
(15).

To make matters even more confusing, the SEC’s

proposed definition of a family office was released
in October of 2010. With the passage of the Dodd-

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Frank Act in 2010 (effective July 2011), advisors
and wealth managers needed to evaluate how
their firms would be affected by the repeal of
current exemptions.

The SEC’s proposal has defined the family office

as:

[E]ntities established by wealthy families to

manage their wealth, plan for their families’
financial future, and provide other services to
family members. Single family offices
generally serve families with at least $100
million or more of investable assets. Industry
observers have estimated that there are 2,500
to 3,000 single family offices managing more
than $1.2 trillion in assets. (3)

Later in the proposal, the SEC elaborates on the

family office definition, writing:

(b) Family office. A family office is a company

(including its directors, partners, trustees, and
employees acting within the scope of their
position or employment) that:

(1) Has no clients other than family clients…

(2) Is wholly owned and controlled (directly
or indirectly) by family members; and
(3) Does not hold itself out to the public as
an investment adviser. (36)

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Before the Dodd-Frank act, family offices meeting
specific criteria were able to avoid registering
with the SEC so they could “resolve disputes
internally without the involvement of the
Commission”, and maintain the privacy of the
family members. The SEC explains that exceptions
are currently made for:

any adviser that during the course of the

preceding 12 months had fewer than 15 clients
and neither held itself out to the public as an
investment adviser nor advised any registered
investment company or business development
company. (4)

The only problem with this proposal is that it

continues to exclude many offices doing the same
thing as these smaller offices. Many family offices
use outside sources of securities management,
which this definition does not include.

The Dodd-Frank act was put into place to make

this exclusion no long available for anyone, fund
or family office. As noted in the SEC’s proposal:

The primary purpose of repealing this

exemption was to require advisers to private
funds, such as hedge funds, to register under
the Advisers Act. But another potential
consequence, which Congress recognized, was
that many family offices that have relied on
that exemption would be required to register
under the Advisers Act or seek an exemptive

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 order before that section of the Dodd-Frank
Act becomes effective. (6)

The definition of the family office from the SEC

doesn’t appear to have been created to bring a
consensus to the industry on what a family office
is. Rather, it seems it was meant to protect the
select few family offices that meet the criteria, and
make it easier for them to do more without the
“involvement of the Commission”.

Rules and regulations are put in place to protect

the average American, the people who make up
the country the SEC says they serve. However, this
exemption only serves the people “with at least
$100 million or more of investable assets” and who
fit the criteria laid out in the proposal. This is not
the general public or the average American family.

The definition they propose has generated a lot of

talk in the financial and family office space. Others
in the industry, working with families and offering
their services to family offices, know that this
definition is very limiting. Though it is hard to
define what a family office is, it is easy to see that
the SEC does not capture the full definition.

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Single Family Office (SFO) vs. Multi-Family
Office (MFO)

As seen above, the family office is difficult to

define. Though the SEC definition touches on what
most in the space would define as a single family
office (SFO), it excludes all of the offices that may
have begun as a single family office and are now
offering their services to other wealthy families, as
FOX suggests many multi-families have done. A
Multiple Family Office (MFO) is:

[A]n organization that provides family office

services to more than one family group. Many
MFOs begin as a dedicated office serving one
family group. The decision to “open their
doors” often happens in response to requests
from the family to offset the cost of the office or
to enhance the group buying power (FOX).

Brian Schuyler from the Business Journal notes

that “[t]he multi-family office evolved from the
concept of single-family offices, offices that
manage the wealth of one wealthy family” (Vogel).

The multi-family office was a logical

transformation from the single family office, and
with the associated costs and time requirements
of a single family office, multi-family offices make
more sense for families looking for the services of
a single family office, but the convenience of a
larger office.

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To corroborate that definition from FOX, Wharton
management professor, Raphael Amit, says that
“individuals and other groups of families often
form similar entities known as multi-family offices
(MFOs) which, according to Amit, number in the
thousands.” (qtd. in where the wealthy are
investing)

Quoted in Schuyler’s article, Kevin Sheehan from

FOX noted that “The multi-family office concept is
growing because the market is wide open. Recent
studies pegged the number of households in the
country with assets greater than $20 million at
about 32,000” (qtd. in Vogel).

The definition proposed by the SEC does a great

job of summarizing a small, single family office,
though even that limits the size of a family office
to serve just 15 family members. The problem
therein is the fact that families grow, and lineage
can continue on for generations.

Additionally, according to a study done by

Wharton, “the average SFO in the Wharton
sample serves 13 households within the same
family group, covering 40 family members and
two to three generations” (Knowledge@Wharton).
This makes it extremely difficult for even single
family offices to meet the criteria imposed by the
SEC’s definition proposal.

The reality, however, is that a family office can be

a single family office or a multi-family office. This

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means that (despite the number of clients per
family) there can be one family the office manages
affairs/wealth/accounts for, or there can be many
families. The size of their assets can vary greatly,
and there is not set rule as to what that figure
needs to be. (According to the SEC, it is generally
at least 100 million or more of investable assets.)

According to Lauren Foster’s article in Financial

Times, however, families today “with at least
$20m in liquid assets are turning to multi-family
offices, which look after the investments of
handfuls of families. The choice is whether to join
an independent MFO or one within a large
institution” (Big or boutique for super-rich).

There is an average size, however, for the family

office client that seeks the services of a MFO as
opposed to a SFO. Thomas Liverpool, founder and
SEO of the Family Wealth Alliance, as quoted in
Foster’s article, said:

MFOs typically serve families that are too

large for traditional wealth management firms
but too small to have their own dedicated
staff. These families are in the $20m to $200m
range, although the upper limit is rising. (The
ultra-wealthy often handle their financial
affairs through dedicated SFOs.)

The definition from FOX of a multi-family office

seems to be agreed upon by others in the industry,

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namely Dr. Steen Ehlern, Managing Director of
Ferguson Partners Family Office, who writes:

In a generic sense, families like the

Rothschilds and other families and dynasties
had their “family offices”. The “old” banking
houses/families acted as entrepreneurs, i.e.
they were the forebearers of today’s multi-
client family offices (MFOs), as they offered
their services to others, beyond their own
families – for a fee (Ehlern 2).

While there are stark differences between the SFO

and the MFO, there are many similarities that
make them very closely related, and really just
larger and smaller variations of each other. They
serve a great purpose, and with the economic
changes and growth of wealth around the globe,
they will likely continue to be a necessity.

In a Forbes Media article titled Your Own Family

Office, Keith Bloomfield and Russ Alan Prince
make an observation that “[a]s the very wealthy
continue to expand their fortunes, family offices
are likely to continue to multiply” (3). This
indication of future (and continued) growth is
promising for money managers and fund
managers alike.

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Family Office Growth – Domestic and
Abroad

As mentioned before, the wealthy will continue to

expand their wealth, and family offices will
continue to grow in numbers. With that growth
comes growing needs and wants for wealth
management services. Around the globe, more and
more wealthy families are looking for something
similar to the family office seen in the US.

In 2000, the Family Office Exchange (FOX)

released some information on the global family
office, comparing the family office in the US and
the family office in Europe through select
interviews with 40 of the leading family offices.
Some interesting findings from that study include:

a.) The amount of young offices in Europe as

opposed to the US. 39% of European offices
from the study shared that their office was
1-10 years old, whereas 26% of the US
offices indicated that their offices were
more than 50 years old.
b.) The larger assets in Europe. 55% of the
offices from Europe shared their liquid
asset size was in exceeds of $1 billion. Just
30% of the US offices replied the same.
c.) The largest expenditure (three fourths of the
family office budget) is allocated to
personnel. (Research on the Global Financial
Family, 2)

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Factors Encouraging the Growth of the
Family Office

While the number of family offices around the

world is unknown, it is known that more and
more family offices are being created every day.
There are many benefits to having a family office,
and FOX lists just a few that they say encourages
the creation of family offices:

• “One central source for information on,

advice about or oversight of all of the
family’s financial matters. We call this
integrated financial services.
• Pooled purchasing power across a family
group, resulting in better service for a
better price than individual family
members could attain on their own.
• A dedicated team of professionals who
are focused on client goals in a completely
confidential manner.
• Continuity from generation to generation
on issues of family heritage, the family
trusts, family values, or family
philanthropy.
• Access to professional advisors who can
educate family members about their
reponsibilities [sic] of ownership and
participative governance.” (FOX FAQ)

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Trends Affecting the Family Office Industry

The Growing Number of High-Net-Worth and

Ultra-High-Net-Worth Classes Around the
World

In most developed nations, the wealthy are

accumulating assets more rapidly than the middle
class. At the same time, many emerging economies
are thriving, with annual growth rates of 4-10%.
Others, according to Economy Watch, are growing
at an even faster rate. Ghana's economy is growing
at a blistering 20.15%. It's a $23.4-billion
economy(Economy Watch).

Many experts have noted that by 2015-2020,

China's upper class will be larger than America's
middle class, especially with an estimated GDP
growth rate of 10.3%. (CIA-The World Factbook)

Growth in countries such as China, Brazil, India

and Russia will ensure that the family office
format of wealth management services continues
to grow in popularity over the next five to seven
years.

Transformation from the SFO to MFO

As mentioned before, the financial space and

wealth management industry has seen a lot of
change, especially in the past decade. Some of the
biggest players in this change include the large
costs associated with managing a family office,

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and the consolidation of the banking world.
Additionally, the growing wealth of the world, as
mentioned above, is playing a key role, as well.

According to a Rothstein Kass press release,

Richard J. Flynn, head of the Rothstein Kass Family
Office Group:

Research suggests that individuals and

families with $20 million in net-worth are
increasingly gravitating to the multifamily
office model rather than the more traditional
single-family office structure. However,
determining the ideal structure remains a
customized process considering factors that
can vary greatly from family to family.

Hauser writes:

As the costs of staffing increase, the financial

burden becomes an issue to the family, who
may begin to wonder whether they are in fact
saving money by funding their own office.
Family and office staff alike will soon begin to
consider whether overhead costs can be
reduced by adding other families who would
share those costs. This is what has led so
many family offices to market actively for
additional clients. At this point, though, the
original benefit of having a personally
dedicated office will be gone. Also, the new
families will tend to feel that they are

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 additions and not quite as important as the
original founding family. (19)

Though some families may feel like they get less

attention, the appeal of the multi-family office is
still present, and the need for them to be is also
present. Ken Evason, president and CEO of
Jacobus Wealth Management Inc, a multi-family
office in Wauwatosa that evolved from a single-
family office, noted that "The growth (in the multi-
family office business) has really been from
families recognizing the need for conflict-free
advice” (qtd. in Vogel).

This driving force behind the allure of a family

office will likely continue to affect and encourage
the further growth of the industry.

Competition from Larger Institutions

Many firms, seeing the benefits of adding a family

office services department, have done so. As such,
“large banks, investment houses, and insurance
companies are presenting themselves as family
offices as well” (19). Their ultimate goal is to
capture a piece of the market and some of the
available funds to manage.

Where there were many private banks in the past

accommodating the needs of the wealthy in
Europe, there are now numerous larger
institutions attempting to offer the same services.
This is a result of the mergers taking place in the

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financial space. “The services these [smaller]
institutions had provided to wealthy families in
Europe had in many ways been similar to the role
of the family office in the United States” (Hauser,
20).

Due to the changes experienced in the financial

and wealth management spaces, “[there] has been
a sharp decrease in the number of small,
independent private banks.” (Hauser, 20)
European families are now looking for something
similar to what the US family office was, and an
alternative to the larger institutions.

Something playing into both the change from SFO

to MFO and the change from private to institution
is the consolidation of private banks. “[F]amilies
with sophisticated financial needs have fewer
financial institutions from which to choose. Small
advisory firms have been wooing private clients
and many single-family offices have opened their
doors to other families” (Foster).

While this can be beneficial for families not

wanting to take on the financial burden of running
and operating a family office of their own, many of
these institutions, banks, and investment houses
were not created for the same reason a family
office would be created, and thus will not be as
successful in the family office market. “They need
to understand the importance of the old-fashioned
values of caring and understanding, coupled with

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reliable and consistent availability, [because] [t]he
investment skills can be outsourced“(19).

As Hauser covered in her Journal of Wealth

Management article, many institutions are adding
services to their offerings, and trying to capture a
piece of the family office market. This, however, is
somewhat contrary to the main reason the family
office was created: personalization, and control.

When larger institutions come into the family

office space, that personalization and control are
lost to the family, as well as the benefit of and
driving force behind the creation of the family
office. Though some may see the growing MFO
space as beneficial to families everywhere, making
these service available to a larger number of
people, Stephen Martiros and Todd Millay have a
different point of view.

In their paper, A Framework for Understanding

Family Office Trends, they offer another take on
the MFO and how it may be affecting the family
office space.

Commercial service providers are beginning

to adopt the words “family office” in two
distinct ways: to describe the quality of their
services or to describe their target market.

In the former case, companies desire to

portray a superior level of service or
expertise. These companies are often

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 positioning themselves to serve families with
assets of $5 to $50 million or more in a “family
office-like” manner. These providers are often
referred to as multi-family offices or “MFO’s.”
Many registered investment advisors (RIA’s)
are re-positioning themselves as multi-family
offices (MFO’s) to provide “bespoke” services
to the most discerning clients.

In the latter case, companies are forming

dedicated business units to serve the single
family office niche.

These business units are often designed to

provide single family offices with special
services, pricing, and dedicated experts.
Banks, insurance, private aircraft, security,
technology, and investment consulting
companies, among others, have recently
begun to establish “family office” business
units. (2-3)

Profitability

This is a growing challenge for family offices.

As populations amass greater wealth, large wealth
management firms are competing on a cost basis
and moving a larger portion of their core services
online. While the average person might appreciate
saving hundreds or even thousands of dollars in
fees each year, many affluent individuals would
much rather spend $20,000 to $100,000 a year to
ensure that experienced professionals are

24
managing their investments and taxes to fit their
specific financial goals and risk tolerances.

Many of these individuals run businesses or have

complex wealth management or tax-related needs,
and they require a team of experts to help manage
their finances. Family offices are becoming the
common answer to that demand, remaining highly
profitable while also serving the unique needs of
the ultra-affluent.

UHNI Have Different Needs

Ultra-affluent clients are demanding highly

professional financial services. While there are no
set rules on what services a family office can or
cannot offer, as was shown in the first chapter,
there are common investment and finance-related
services that most of them provide for their
clients.

Many of these advanced services are not available

within a private banking or traditional wealth
management setting, simply because they are
affordable only for the most affluent clientèle.

Family offices also offer superior expertise on

constructing or selecting alternative investment
portfolios and products. Many have invested
heavily in systems, reporting and institutional
consultants to help select the most appropriate
alternative investment managers and products for
their high-net-worth clients.

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CHAPTER 2
FAMILY OFFICE ACTIVITIES:
ALLOCATIONS & PORTFOLIO
INVESTMENTS
The main purpose of the family office is to provide
comprehensive solutions for the family. Family
offices will take the time to see to it that their
clients are well taken care of. While families have
options for other avenues of wealth management,
investment advisory, or estate planning, the family
office is meant to consolidate services and create a
holistic approach to overall management of a
family’s wealth.

Family office employees are often experienced

and sophisticated enough to understand unified
managed accounts (UMAs), and will be able to
explain them to clientele so they can be employed
where appropriate. A UMA is a “professionally
managed private investment account that is
rebalanced regularly and can encompass every
investment vehicle (e.g. mutual funds, stocks,
bonds and exchange traded funds) in an investor's
portfolio, all in a single account” (Investopedia).

Ultimately, family offices are known for working

harder to make their clients happy because they
often work with a smaller group of core clients.
Though this is changing with the onset of larger
institutions adding family office sectors to their

26
businesses, the family office will likely never be
replaced. The services and attention available to
families through a family office will supersede the
benefits of cost savings that larger institutions
offer to clients, as opposed to funding a personal
family office. (Hauser, 19)

Family offices, unlike other institutional investors,

often experience more flexibility in the way their
assets are allocated. As a family office survey
respondent mentioned in a Preqin survey
conducted in 2010, “[p]ension funds, insurance
companies etc. have parameters and targets they
have to stick to; family offices can be more
flexible” (qtd. in Preqin, 2).

Many family offices use alternative investments,

and will find an individual manager that fits them
best, if they do not already have one that they
work with. Family offices might work with
investment managers internally who are hired as
a full time employee of the office, and other times
they will have outside firms managing their
client’s investments.

To effectively market to a family office, it may be

wise to create a marketing campaign that will
speak to both types of offices, those that manage
investments internally, and those that utilize
outside managers. According to the Wharton
Global Family Alliance, “[i]n Europe, 63% of SFOs
perform asset allocation in-house vs. 47% of SFOs

27
in the Americas.” This figure gives an idea of how
family offices work, especially in reference to the
single family market. MFOs may operate similarly,
though with reduced costs allocated to each client,
an in-house team of investment managers may be
a more ideal set-up.

In addition to having good marketing or capital

raising techniques, it is imperative to understand
where family offices are investing, where they
prefer to allocate their assets. There are many
factors that will come into play for each office,
and, to reiterate from previous chapters, no two
family offices are the same. There are trends,
however, that will affect the entire investment
community, and trends that can affect the family
office industry as a whole.

Though useful and rich in information, there are

very few studies and reports available to better
understand the family office. One in particular
comes from the Wharton Global Family Alliance
that aims to shed some light on the little-covered
area of single family offices.

According to their study conducted in 2006-2007,

“geography, size and age all affect how SFOs
decide to allocate their assets. The study found
that families in the Americas invest more in
equities, while European families invest more in
principal investments and real estate. Principal
investments and private equity allocations are

28
more prevalent for SFOs serving first generation
families” (5).

A large player in the differences seen in asset

allocation was the geographical location of the
family office. WGFA’s study found that

[w]hen comparing billionaire and millionaire

SFOs in the Americas to those in Europe, we
find even greater differences. European
billionaire SFOs invest on average 11% in real
estate; in the Americas only 4% is invested in
real estate investments. Comparing
millionaire and billionaire SFOs on the two
continents, there are also differences in
investment mix, be they equities, hedge funds,
private equity, and principal investments in
companies.

Though knowing where family offices invest their

funds is important, it’s also important to
understand why, and the amount of risk a family
office is willing to take. Some assets are
considered to be higher in risk, though offer an
opportunity for a larger return, and some are
more conservative. According to the WGFA study,
they found that

Contrasting investment objectives with asset

allocation of billionaire SFOs to millionaire
SFOs reveals that while 50% of billionaire
SFOs say they favor a balanced approach to
investment objectives, they tend to commit a

29
 greater percentage of their assets to hedge
funds and principal investment in companies,
which are more volatile asset classes. (28)

Also important to take into account is the size of

the SFO. How many generations does the office
serve? The WGFA study found that that, too,
affected the way the family office allocated assets.

The number of generations that are served

also has a substantial impact on asset
allocation. When asked about their objectives
with respect to investment, it seems that first
generation SFOs are more aggressive with
respect to investments. (28)

The WGFA Report continued on to say that,

Although, on average, asset allocation is very

similar across first- and later-generation
SFOs, there is a significant difference with
regard to principal investment in companies.
In our survey, among first generation SFOs,
10% (median) of the wealth is allocated
toward private equity, while later generation
SFOs allocate only 5% (median). First
generation SFOs allocate on average 14% of
their wealth to principle investment in
companies, while later generations allocate
9%. (29)

The WGFA’s study included offices that serve an

average of “13 households, 40 family members

30
and two to three generations. The median SFO
serves four households and eight family members”
(10).

Though this sample may not be a large portion of

the entire SFO industry, WGFA did address this
earlier in the study report, stating that while the
sample size is “not enough to make detailed
comparisons among subsets of SFOs”, it is
“intended to illuminate family office structure and
practices—particularly investment strategies, not
to evaluate how well a given type of family office
performs relative to another.”(4).

Additionally, while the study focused on SFOs

only, similar factors and trends that affect SFO’s
can likely be said to influence the single family
when a part of a larger, multi-family office. There
are other factors that come into play in a MFO,
however, namely the fact that most MFOs are for-
profit, whereas a SFO may likely be a not-for-
profit office, and working instead to manage and
maintain wealth of the founding family.

An analysis done by The Capital Express found

that family offices also place a large emphasis on
how the investments’ industry is performing, and
what sort of management is seen in the fund. For
example, DMS, a SFO in the US, said that their firm

places a high value on management and

company culture. DMS is flexible regarding
industries in which it will invest. Like most

31
 investors, DMS prefers businesses in
industries which have good growth potential,
which have high barriers to entry, which
enjoy superior and consistent margins, which
are non-cyclical and which have stable
customer relationships and defensible market
positions (qtd. in The Capital Express Blog).

However, contrary to their preferences, DMS has

seen other businesses “operated very profitably
by talented management teams in industries not
meeting these criteria. [W]hile DMS does generally
avoid certain industries, it is generally willing to
consider a wide variety of industries provided the
right management partners will be involved" (qtd.
in The Capital Express Blog).

Another SFO in the US interviewed by the Capital

Express, Thoma Family Office, noted that the
office prefers "established funds and management
teams”, and noted that they invest in venture
capital, private equity, distressed assets, and real
estate. (The Capital Express Blog)

According to the Preqin survey, family offices are

looking to invest and are willing to invest with
people they don’t know. Preqin writes that
“[a]pproximately 69% [of the survey respondents]
told us that, in the next 12 months, they would
consider investing with managers they had not
previously committed capital to” (4). This is
crucial to keep in mind as family offices continue

32
to grow in numbers, and as fund managers
continue to market in an effort to raise capital.

Though a family office may prefer a certain asset

class, be open to the idea of investing with people
they don’t know, and have the assets to invest, you
need to be prepared to actively market your
product to them, and in a way that will resonate
with their needs and wants. This way, you can
directly speak to their core goal and mission as a
family office. Chapter 3 will delve into this topic
more as we cover raising capital from family
offices.

33
CHAPTER 3
HOW TO RAISE CAPITAL FROM FAMILY
OFFICES
Raising capital from family offices is a difficult
task. Like capital raising from other investors, you
need to quickly share how your offering is
beneficial to the particular investor you are
talking to. This requires that you understand how
family offices work, why they are in operation, and
what their goals are, and more importantly, how
this differs from family office to family office. With
differences in family offices come differences in
investment preferences and needs.

Family offices are just as different as families

themselves are. Needs differ, desires differ, and
why the family office is in operation differs. This
translates to their investment decisions as well, as
they will use all of this when evaluating a potential
investment, making it difficult to target and
market to this segment of investors.

According to Preqin’s 2010 Family Office Survey

introduction, fund managers often lack a good
understanding of the family office, and what their
needs are. Because the family office is hard to
define, fund managers are often ill-prepared and
under-informed.

34
 “[Family offices] are, by nature, a reclusive and
private set of investors, which can result in fund
managers failing to understand or fully
appreciate their specific investment needs.
Family offices represent a key – at times
underappreciated – source of capital for private
equity fund managers, however” (Preqin, 1).

A large component of successful capital raising lies

in simply knowing who your target is. Knowing
who the family office is as an investor group is
vital for fund managers looking to secure capital
and/or commitments from family offices (Preqin,
5).

Due to the opportunity to source capital from

family offices, many funds and fund managers
target the family office, but often do so without
first preparing themselves. Preqin went on to say
that “[t]his is particularly true for firms managing
funds at the smaller end of the scale, for whom the
building and maintenance of family office
relationships can be crucial, but it has also become
the case for all private equity firms as the difficult
fundraising climate persists” (Preqin, 1).

Not only are family offices difficult to reach and

difficult to capture the attention of, difficulty in
fundraising is expected to continue, and “the
search for new sources of capital is likely to
intensify. Private equity firms, both large and
small, have found it necessary to look beyond

35
long-established relationships for investors with
capital to commit and family offices are one
investor group that are likely to receive greater
attention” (Preqin, 2-3).

With the opposing competition, your initial point

of contact can make or break your success. Capital
raising, or marketing, relies heavily on your
understanding of the recipient of your marketing
materials. Your product will be of no interest to
your target market unless you know how it will
benefit them. Since most fund managers are better
equipped and more experienced in managing
funds, their marketing expertise may be limited.

In talking about one of their recent events, The

Association for Corporate Growth® (ACG®) said
“Family offices and high net worth individuals
remain one of the most fruitful sources of capital
for today’s private equity fund managers -- if you
can get their attention.” Expressing how you can
help the family office (by either solving a problem,
offering a great opportunity for returns, etc.) is
one way to get their attention through your
marketing efforts.

On the ACG® event homepage, they also go on to

share the importance of being up-front with
family offices when raising capital:

…family office managers are demanding much

more disclosure from GPs than in the past. So
if you make it to the door, you can expect initial

36
 skepticism, demands for transparency, and
close scrutiny of every number. (MasterClass™)

Though it is ideal to have a good idea of who each

family office is that you want to target, it can be a
bit overwhelming and unrealistic to do when
trying to raise capital, and when trying to do it
quickly. What you can do, however, is to
familiarize yourself with the family office industry
as a whole to better understand what most offices
have in common.

The first thing to know is why family offices are

being created. There are many reasons, the
biggest being the growing wealth of the world and
its concentration in families. From that growth
follows the need to control and manage the
wealth, as well as the desire to keep the wealth
growing, and in the family.

In their article, Your Own Family Office, Keith M.

Bloomfield and Russ Alan Prince drive this point
home with their findings that “there are a variety
of reasons for the exceptionally wealthy to create
family offices, the primary reason being ‘control’”
(2). In their text, The Family Office: Advising the
Financial Elite, Bloomfield and Prince also delve
into this topic as it relates to SFOs and MFOs,
noting that MFOs have a need for control, but their
primary motivation for being in business is the
lure of profit (69).

37
Another drastic difference from SFOs and the
MFOs is that the latter group is looking to increase
their client size, whereas the SFO does not operate
with the intent to expand or add clients (other
families). The move and transformation of the SFO
to the MFO will affect this, of course, but not while
the two entities are separate (Russ, 69).

Addressing this need for control (in both the SFO

and the MFO) is a great way to resonate with the
family office and a great way to indicate that you
understand what they are trying to do, and what
their needs represent.

Wharton’s 2007 report, “Single Family Offices:

Private Wealth Management in the Family Context
confirms this theory stating “the family’s most
important objective for the SFO is trans-
generational wealth management and the key
benefit of having a SFO is to have the SFO operate
more as a consolidation function of family wealth
management and control” (12).

Susan Keats, Fidelity Investments Corporate

Archive Manager, was quoted in Fidelity’s
“Creating a family history to help preserve the
legacy”, saying “One of the reasons people have a
family office is to have an organization that helps
keep the family together and maintain their values
and principles” (1).

In addition to why the family office was created is

the important factor of what the family office

38
hopes to do. Russ, Grove, Bloomfield and Flynn
note that there are two “groups” here: the wealth
creators, and the wealth preservers (Russ, 55).
This is crucial to pay attention to when you
address the various family offices, as the wealth
preservers will think very differently from the
wealth creators.

This difference in thinking will affect everything

the family office does, from the services they offer
their own clients to the investments they choose.
In their study of family offices, Russ, Bloomfield,
Grove, and Flynn found that of 825 offices, 68%
were investing in alternative investments, but just
38% of those offices considered themselves to be
Wealth Preservers. That means that Wealth
Creators are much more prone to take on any
additional risk that alternative investments may
pose (Russ, 117).

According to Hauser, family offices in the US are

usually created for one of a three main reasons.
One is out of necessity for a successful
entrepreneur, prime examples being Rockefeller
and Carnegie. Another reason is the sale of an
operating business where the wealth was
originally earned for the successful entrepreneur,
and lastly, a family office is often created for the
quick wealth accumulation of young
entrepreneurs, as was seen in Silicon Valley and
the Northeast Corridor (Hauser, 16).

39
Also important to note is how the economy affects
family offices. Aforementioned were some insight
into how regulations and rules can affect family
offices, and how that might affect your marketing
approach.

As FOX mentions, the concept of the family office

in Europe and “is just evolving, but new family
offices are being formed monthly in these areas”
(FOX “Frequently Asked Questions”). The growth
the family office space is seeing equates to great
opportunity for capital raising, and with more and
more offices opening each month, the market to
raise capital from is continuously expanding.

Knowing why family offices are created and what

affects them is just half the battle of raising capital,
however. Just as is important is the knowledge of
how to properly work with a family office based
on some of their preferences, and again based on
their needs.

40
Important Things to Note when Marketing
to Family Offices

Here are a few tips for working with them

effectively so as to create a win/win relationship
with them and the clients they represent:

• Differentiate the fund and yourself.

Many family offices are called daily by
asset managers looking to build
relationships. Try to be local, different,
more professional, or more organized
when meeting or working with family
offices. This can create a lasting
impression.

• Differentiate your team. Focus on

providing details on your team, your
competitive advantage and risk
management process. A 7+ year track
record will set you apart from many other
firms offering products or services.

• Wealth Creators vs. Wealth Preservers:

Similar to many other types of investors,
capital preservation and consistency will
usually take precedence over volatile high
returns, especially in the family office
space. Families want longevity and
consistency. Conversely, the wealth
creators are open to investing more and

41
 in higher risk investments, so ensure that
you know who you’re talking to.

• High performance returns alone does

not gain you any ground with a family
office; in fact, too high of returns may
simply appear as risky. Typically, the
most inexperienced fund managers will
concentrate their relationship
development efforts on touting their high
performance returns.

• There are more than 3,000 family

offices in the United States alone. If you
have gained some traction within this
space it would be wise to allocate 30% of
your time to this distribution channel and
assign someone to help grow assets here.
There are so many family offices to grow
relationships with that anything less than
a concerted effort using a dedicated
professional and database of family
offices may not be worth it.

• Communicate through multiple

channels. Sometimes sending a folder on
your company, a well thought out but
very concise email and then a phone call
can be most effective while building a
new relationship. Using these other
marketing tools instead of just simply
blasting out emails or calling everyone

42
 can make for a more productive
relationship.

• Avoid calling a family office that you

would like to work with on a daily
basis. They are relatively small
organizations and do not have the time to
work with groups that do not provide
them with the professional consideration
and space to reply in time to incoming
requests.

• Lastly, remember that family offices

require a higher level of privacy. If you
plan to work with these family offices,
know that they will require more privacy
and confidentiality than your other
clients.

• Though confidentiality is a key reason

family offices are created, the most
important benefit of the family office is
wealth management and control, as we
went over earlier.

While good performance is not the only thing that

a family office looks for, it is one of the most
important things. When asked in Preqin’s survey,
respondents indicated a “greater interest in the
history of [GP] firms than the actual strategies
employed by those firms or their location.
Approximately 82% told us that they look for
managers to have a good record in [their] market,

43
while 69% said that they value the amount of
experience firms have in the asset class” (Preqin,
5).

This information is especially important to those

looking to raise capital from family offices, and
emerging managers. “As well as indicating that
family offices might not be receptive to first-time
and emerging managers, this also underlines the
need for family offices to have access to
information about the history and past
performance of management teams” (Preqin, 5).

Despite the desire for more experienced

managers, family offices tend to have a varying
interest in terms of what companies they invest in.

44
How to Market to Family Offices

Marketing to a family office can be a tricky art to

perfect. Here are a few tips to marketing to family
offices:

• Family offices have well established due

diligence procedures, often involving
consultants or internal analysts that do
nothing but look at hedge funds or
alternative investment products. This is
also a service that a family office may
outsource, so keep this in mind when
marketing your products or services.

• Financial advisors are often much more

sensitive and motivated by how they will
earn a commission or income from the
transaction. Many family offices charge
enough in fees that this is less of an issue
when looking for investments or
products.

• Recall, too, that family offices were

created to provide holistic,
comprehensive services to their clients.
They are meant to be there for everyone
and do everything for them (Hauser, 22).
They are not there to simply make a
commission or create the most returns.
Often, family offices are concerned with
the preservation of wealth and the

45
 avoidance of taxes. Know how you can
better serve those needs so as to market
your offerings more effectively.

• Family offices often take 18-24 months

just to complete their due diligence and
committee meetings. It is a very long sales
process, so know that your time and
resources will be invested there for a
majority of the relationship building
process.

• Family offices require genuine

relationship-building efforts, tenacity, and
honesty. Be aware of how you present
yourself. Know that the privacy and
confidentiality they require will affect
their decision to do business with you,
and the relationship you build with them
will affect their level of trust in you.

• 90% of family offices only seriously

consider investing in hedge funds with at
least $75M-$100M. Many require $250-
$300M or even $1B in assets under
management.

• Family offices are tight-lipped. It will take

a lot of effort to develop a relationship,
meet in person and get clear feedback on
why or why what you are offering is a
good fit for what they are looking for.

46
 • Family offices are difficult to identify.
Some may advertise, but many stay below
the radar, and often purposefully don't
even have a website. With regulation
exemptions like those that the Dodd-
Frank is repealing, many family offices
were not required to even register with
the SEC, making it easy for them to work
behind the scenes.

Due Diligence definition here or why this is

relevant to capital raisers and family offices.

To help reiterate the above information, and to

add a few more helpful tips, below is a transcript
of an interview between Richard Wilson and Tim
Mohr of BDO Consulting. Tim will talk about due
diligence in regards to capital raising, and how to
be

Richard Wilson: Tim, thank you for joining us

today.

Tim Mohr: My pleasure, thank you.

RW: Great, well, just to start with, how did you

first break into doing due diligence on individual
hedge fund managers and members of hedge fund
teams, how did you first get started down that
road?

TM: I’ve been conducting and/or managing

investigations as a whole for, in excess of 20 years,

47
starting my career with an int’l private
investigative company, and from there moving on
to a large commercial bank where I was in charge
of investigations by the time I left, and found my
way into the public accounting world. I’ve always
been providing investigative due diligence
services, either as a part of an investigation or as a
stand-alone piece of itself.

The world of alternative investments has always

been a piece that we’ve done work in and that
we’ve provided the investigative due diligence
services in, and that would be along the lines of
looking into matters with regard to private equity,
fund of funds, and hedge funds themselves. And
the work that we do, the investigative due
diligence services that we provide with regard to
fund managers are on behalf of the investors or
fund of fund, so either institutional investors,
endowments, or fund of funds.

We’ve been doing that at BDO for the past 6-7

years. I would say that of our total investigative
due diligence practice, it’s probably a 60-40 split;
60% [of our practice] we’re doing for other
transaction based or investigative needs where
we’re looking at backgrounds of individual
entities, and the remainder in the alternative
investments field.

RW: Are there certain things that, when doing

investigations on managers or research on a

48
manger that someone might invest in, are there
certain things you look for to make sure that that
HFM has invested enough in their own business?
Is that ever part of the research process?

TM: That’s not a part of our process. What we’re

looking for is really tailored to the client or the
individual requesting the background to be done.
For the most part, to put it in very general terms,
we’re looking for publically available information
as well as other reputational information so that
the investor and/or client has a full picture of the
people who are going to be making the investment
decisions.

RW: What type of reputational information is

being analyzed by these institutional investors
and fund of funds? I think many hedge fund
managers would expect a background check, but
besides checking on whether they got their degree
or not, I think most would be in the dark of what
reputational factors would be investigated.

TM: So, we’re looking at a few different things.

We’re looking to see 1: is the info that they
present about themselves, things that are
contained in a bio, a CB, or even in some instances,
a questionnaire, the information that they are
providing, we are checking the veracity of that
information to see whether or not it’s truthful. You
mentioned education, we look at that information,
we look to see if they received the degree they

49
said they received, We look at employment
history, and we then also look to see if they are
license, are they are required to be license, did
they ever hold a license, either through FINRA or
other regulatory agencies, and if they did have a
license with any of those agencies, were there any
issues, was anything filed under that license, or
against that individual, so we’re looking to see
what’s the background in regards to that licensing.

From there, and moving more into additional

public areas, we’re looking at criminal record
history; we’re looking at civil history; how many
times have they been a named party in an article
of litigation, either as a defendant or as plaintiff?
What is the nature of those suits? Do they have a
personal bankruptcy in their background?

The entities they were involved with, or, maybe

where they had started their careers or maybe in
other places where they’ve been in during their
careers, have those places been involved in issues,
not necessarily with them themselves, but have
they been associated or affiliated with some sort
of entity that has been involved with some
negative press. Then we look at media: we look at
press reports, media reports; we look to see what
is being publicly said about the individual. That’s
really exhausting the public record side.

From the reputational side, we start with the

references; everyone can provide a reference, and

50
the reference you provided usually is probably
saying nothing but good things about you, so we
try to develop references; we look for additional
people, people that the manager may have crossed
paths with during their career that might be able
to give us additional information about their
background, and then you try to corroborate that
information if you can. The important thing for us
is everything we present back to a client is
corroborated, and it can stand alone. If it ever
reaches the level of somebody questioning what
was in the report, it can stand-up to that question.

RW: It sounds like one lesson that someone who’s

running either a smaller or mid-size hedge fund
could take out of that is that they should probably
treat every current, potential, and past investor
with a lot of respect and honesty, even if there is a
conflict at some point or a disagreement. It sounds
like you definitely don’t want to burn any bridges
in this industry, as it can come up in this type of
research, most likely.

TM: That’s correct. And look, everybody, me and

yourself included, have a footprint in the public
record. We’ve all been involved in issues, not
always negative, but there’s things that happen,
and that’s normal. And that’s fine; there’s nothing
wrong with that. The important thing is that if
you’re asked information about your background,
don’t leave things out because that just opens up
the next question, “why did you leave this out?”

51
Now if it was something dated and you forgot
about it, it’s explainable, but you want to make
sure that the information that you provide is to
the best of your knowledge and that anything that
happens within your career, you just want to, if
you act in a manner that’s treating people with
respect, you’re not burning your bridges, look,
nothing’s going to be perfect, and people are going
to be upset. I’m sure on the investment side of
things there are going to be people that are upset,
and you can’t control that, but you operate in a
way that you can go to bed at night and feel that
you did everything above board and proper, and if
people are upset, there’s nothing you can do about
that, then there’s really nothing to be concerned
about.

RW: What about other types of public records, like

credit history or driving records, is that too
detailed for what you guys are look at, or is that
something that, where somebody has horrible
credit, they should be worried that maybe that’s
going to hurt the research that’s done by research
firms like yourself?

TM: Well, credit reports is an interesting piece,

because we’re not going to look at credit reports
unless we have authorization to do so from the
fund manager, so we’re going to be asking for a
lease to be signed before we do anything more like
that. Your credit reports: yes. I’ll take a step aside
for a second and tell you that each investor, each

52
fund of fund has their own risk tolerance. So what
may be of concern to one is most likely or may not
be a concern to someone else. And that risk
tolerance steps up the level of depth in
background information that we’re going to
gather and report.

So for example, you mentioned driving records.

Well, for some, driving records is not important.
For others, it’s going to be extremely important
because, what if there’s a driving history that
shows a tendency for recklessness? Some people
may make a decision, “I don’t know that I want to
put my money with someone who acts in that
manner.” Others may say “Ok, it goes with the
territory.” Or for whatever it may be; they may
come up with some other reason why it’s “not a
big concern of mine”.

One of the things that comes up and that you see, I

wouldn’t say often, but more often than other
issues, is DUIs, or driving under the influence
charges. It happens, but how often did it happen,
when did it happen? Was it when you were 18
years old and in college and you did something
foolish, and you haven’t done anything since then,
or did it happen 4 times in the last three years?
Those are going to affect people’s decisions
differently. You take things that you find as they
come in, and as each individual, and deal with it as
an individual issue.

53
You can’t make general statements that “anybody
with DUIs I’m not going to do business with”.
There’s always a reason why maybe you should.
Not to talk lightly about driving under the
influence, because it’s something that should not
be done, and it hurts people, and it hurts other,
and it hurts family members and yourself, but
with that said, some people have different
tolerances. So a blanket statement of what you
will accept is usually hard to live by.

RW: What about social media pages? Maybe

somebody has a Facebook page and they’re a
hockey coach for their son, and they talk with
their family there. Should a hedge fund manager
be worried about a personal Facebook page which
doesn’t market their hedge fund at all, but when it
comes to due diligence research, is something like
that or some comment that someone else makes
on their wall going to hurt them in the social
media space?

TM: I would use this simple thing: if you don’t

want someone to see it, you shouldn’t be putting it
on any social media. You shouldn’t be putting it on
LinkedIn, you shouldn’t be putting it on Facebook,
you shouldn’t be putting it on MySpace, and you
shouldn’t be putting it on Twitter. If you don’t
want anyone to see it and it’s something that is
going to affect your business or you personally,
don’t put it out here. You know, are the social
media sites searched? Yes. It’s very simply. Stuff is

54
put out there and you have to take the approach
that “if I put it out there, somebody’s going to see
it”.

So just think about it. It’s like a 7-second delay.

Think of it that way. Before you hit send, read and
think about whether or not you want it out there.
Somebody sends you a friend request and you
haven’t seen that person in 15, 20, 30 years. Think
about it. Do you want to accept that friend
request? How is it going to affect you when
somebody looks into your background and sees
this type of a friend? You just have to think that
through. You may be thinking “it’s my personal
life; it has nothing to do with my business side,
and this is something I want to do to be able to
keep in touch with friends.” Just keep in mind and
understand what can happen with that.

RW: That makes sense, and it’s obvious when you

think about it. I think maybe people don’t realize
how easy it is to find those types of online social
media type conversations, and they show up
everyone on Google and everywhere else.

TM: We’ll, think of one other piece though. You’re

on your FB page and you’re a fund manager and
you have a hobby of flying. You like to fly, and
you’re constantly seeing pictures on there and
you’re seeing posts. Now, posts all have
timestamps on them, and all your status updates
have timestamps on them. Somebody looks at

55
those files and sees a lot of time spent up in the air
flying, they may be thinking, “how are they
managing money if they’re doing that?” Those are
the types of things that I don’t think people think
through.

RW: I had a client once who ran a hedge fund; it

was growing somewhat successful, but he was a
little self-conscious about the fact that even
though he was good at what he was doing, he
never graduated from high school. In your
research, education would obviously come up, as
you mentioned earlier. Do you see clients, many
times, that find that unfinished education is a huge
ding? Do they look at the whole picture? I wonder
how big of an impact that has on the due diligence
process, typically?

TM: For us, it’s a piece of information, and we

don’t make the decisions. We present the
information to the client, and the client makes the
decision as to what they’re going to do with it. The
only thing that I can say is that some people look
at this like a job interview. You come in, you don’t
have a college degree; does that mean you can’t do
your job? No, but that may be a qualifier, a
qualifying piece of information that they want to
have. So I think some people treat it differently.
My own personal is that you take the package as a
whole. But I have not heard of someone dinging
somebody for not finishing their college degree or
they didn’t move on to get their masters, or that

56
they didn’t even finish high school. I haven’t heard
of it and we’re not involved in that decision.

RW: I can’t imagine a DDQ(?) doesn’t ask for the

full education or the bios of the team, but say for
example, a fund of fund made an investment
decision off a very brief DDQ, and they did ask
some DD questions, they do have a phone call but
they never explicitly ask something like, “did you
get a college degree, did you graduate from high
school”, or perhaps it’s something else in the
background that you would bring and you
wouldn’t lie about it, but weren’t asked about it.

From your perspective, because you’re the one

doing a lot of this investigative due diligence, it
always better just to bring out that skeleton up
front, whether they would have ever found that
out? Is it much better to have that out there, and
be 100% up-front, or is it such a competitive
industry, and though the client might not have
cared about it anyways, but now that you’ve
brought it up, it’s now a negative thing they look
at whether to invest with you or not? What would
be your advice in that area?

DDQ Definition here? It might make more sense to

just briefly describe it in the interview question
about, like, “I can’t image a (whatever it stands
for), a (whatever it is), doesn’t ask for…” It would
seem more natural and not interrupt the
interview. It would also make sense to put the

57
definition in the section above this interview
where we’ll talk about why due diligence is
important and what it has to do with family
offices.

TM: I know it’s a cliché, but honesty is always the

best policy, and putting it out on the table is best.
Because we start to look, and then we come up
with, and it becomes an issue, for a lack of a better
term, that you now have to deal with, and though
it’s not on our part because we don’t do this, the
client then starts to wonder, starts to speculate as
to why they didn’t tell us.

So it’s better to lay it out on the table, and say “this

is who I am”. Of course, this needs to be done in
the right context. If it’s the first meeting you have,
I wouldn’t come out saying “by the way, I never
graduated from high school or college”. It’s not
relevant at that point. If you’re getting down to the
point where you say to a prospective, “Look, we’re
going to conduct a background investigation on
you”, ask the question “Is there anything you need
to tell us now before we start so that we can
address it up-front?”

What happens often with us is we find stuff, and

we’re in constant communication with our client. I
can get an assignment this morning, find
something this afternoon, and be back on the
phone with the client this afternoon, and I’m
telling him, “Look, we found this, we corroborated

58
it. Do you want us to chase it down? Do you
already know about it?” And we’ll get the
response, “Yeah, we heard about it, we talked to
them about it, we’re not worried about it. Keep
going.” Or, we’ll hear “No, we didn’t know about it;
put the brakes on, stop, that’s a deal breaker for
us.” So laying everything out on the table, when
the time is right, when you’re discussing
backgrounds, it that’s what’s happening, lay it out
on the table.

If someone’s going to make a decision to not

invest in you, and your track record is impeccable,
no scars, no skeletons, and you’ve always laid
everything out on the table, and someone’s going
to make a decision not to do that based on some
small piece of information, move on. There’s
nothing you’re going to be able to do, and hiding it,
it’s going to come out, and then you’ll look worse.

RW: Right. I’m trying to go through some of the

tips you provided here, to make a short check list
that hedge fund manager could do, that are hard
working, generally committed to their business,
and they’re not trying to game your research, but
maybe they didn’t pay attention to or didn’t
realize that credit history could ever impact them
running a hedge fund. So I’m trying to come up
with a list for people to actively prepare for this
type of intense scrutiny that will be cast upon
them when they approach more institutional
investors. I have:

59
1. Clean up your social media footprint. If you
haven’t thought about that in the past, maybe
you need to go through and delete some
things, make some things private, or just be
more aware of what you’re saying and not say
things that need to be deleted in the first
place.
2. Develop honest and respectful investor
policies, no matter how nasty or unfair an
investor is, or makes claims against you, try to
solve things in a way that doesn’t leave them
with a horrible taste in their mouths, and treat
people fairly.
3. Come up with policies with your whole team
in regards to social media and what you post
online, as well as how you manage your whole
online reputation.
4. Honesty is always the best policy. Once you’re
going through a research or due diligence
process, your credit history could make an
impact, so pay attention to that, and just
remember that they may ask for that at some
point. Perhaps review your own name on
Google within the search engine results so you
can see and manage your own online
reputation.

There may be some things that you maybe

forgot about, so knowing about those, you can
better prepare a way to explain it clearly or
find a way to clean up that issue so that it’s
not being posted online about you.

60
Is that a good list, you think, for people to pay
attention to?

TM: It is, and I think I’d make two points, which

you addressed on your first item: when you’re
talking about social media, I would not
recommend people go back and clean up their
social media, I would recommend that people go
back and look at it and know what’s there. If you
posted it, you posted it. Be cognizant of what
you’re putting out in the public record.

The other piece I would add to this in more of a

general thing: understand what’s in your
background. You don’t want to go and change
your background, and you’re not going to be able
to remove things from the public record, there are
things that happened in the quarrel where certain
things could be sealed, but that’s not really
applicable here. Just understand what’s in your
background. If you understand what’s there, then
you can address it.

If there’s anything negative in your background,

have an answer for it. I wouldn’t automatically go
on the defensive about it, but have an answer
about it. It may be in the best interest for a hedge
fund manager to have a background conducted on
themselves to see what’s out there, because what’s
coming back as related to them, because all the
identifiers hit: same jurisdiction, this is where
they live, where they grew up, the name is a

61
match, there’s a match on the date of birth; it may
not be you. And if it’s not, you want to address it
and deal with it. You may have the same name as
your father, and so, this is recent in one that’s
ongoing now where the father and the son have
the same name. Credit reports got merged, and
they’re in the same business, so trying to
distinguish between the two has become very
difficult. So understand your own background and
where there’s fixes that can be made because a
credit report may have been merged with
someone else, fix it.

I would recommend everybody, every 6 months,

to look at your credit report. Make sure that what
is on there is either yours or not yours, and go
through the process available to you to get it off.
So, just understand your background and doing a
background on yourself is great, and Google is a
great tool, but just recognize that it’s a tool.

We see this stuff every day. And because it’s on

Google and because it’s on a blog, we treat that as
just pieces of information that are either going to
be corroborated or not. And taking information off
blogs, good; good source of information, but check
it out and make sure it’s right. If you get
something in a media report, make sure it’s
correct. So, I would just recommend knowing
what’s out there on yourself.

62
RW: Something that I recommend for hedge fund
managers, for example, if they have a 5 year track
record, and in year two they had a style drift or
some securities got as little bit oversized in the
portfolio, those type of issues may come up, but
you may not want to put them in your pitch book,
as that is your first impression.

I do encourage managers, if it’s a complicated

situation, to have a one-page explanation, maybe a
diagram or a chart, of what happened and a well-
thought out answer as to what was done to
correct it, because you know it’s going to come up
in one of every four due diligence processes or
conference calls, and you should be able to quickly
reply to it with a complete, well-researched and
cited answer that is compliance approved. That
might be a little over-kill for a few of the things
that might come up in your background history,
but it does remind of something we usually
suggest a hedge fund manager do in regard to
their hedge fund overall.

TM: It’s a good suggestion. If you know what your

background looks like, and you have something in
there something in there that has an explanation,
because everything does, think of the way you’re
going to explain it, and bring it out in the open and
explain it.

RW: We’re getting down to the end of the

interview here, but our program, our team has

63
spent over a hundred ours putting it together and
making sure that we covered a lot of best
practices, and also interviewed a lot of experts in
hedge fund marketing, what we’re trying to do is
make sure that everyone who goes through our
programs, comes to our events, or reads our
books gets at least $10,000 worth of value,
whether that be a savings of $10,000 in consulting
fees, or saving $10,000 of their time, of that this
advice here helps them to raise at least $10,000,
that’s our internal goal here.

So, from your perspective, as you’ve looked at a lot

of hedge fund managers, I was just wondering if
you have one tip for someone looking to raise
institutional capital now, or sometime in the near
future, that you would consider being worth
$10,000 because it’s so valuable to remember and
stick to as long as you’re running a hedge fund or
coaching professionals running hedge funds? You
may have already said it, or perhaps it’s something
new, but do you have one really powerful tip that
people should take away from this interview?

TM: The best thing, and I’m going to speak solely

in the area of backgrounds and investigations, is
sincerity and honesty; ethics and integrity. If you
don’t have ethics, you don’t have integrity, and if
you’re not honest or sincere in dealing with other
people, you may have a short-term gain, but it will
not be a long-term gain. You may recognize
something or a benefit early on in being a little

64
unethical in or fudging your integrity a little bit,
but in the long-term, it will do nothing but hurt
you. It will likely, too, come back to you, probably
stronger than it did good, so just be ethical,
honest, sincere, and show integrity. You can go to
bed every night, and not have any worries.

RW: That’s a great piece of advice, and it’s

different from the “#1 tip” we’ve heard from other
professionals, so thank you for sharing that. Thank
you again for your time, Tim; we really appreciate
all of the advice you shared here today.

TM: Thank you, it’s my pleasure.

If you’d like to learn more about Tim Mohr, you can

read more about him or his firm’s practice, you can
do so at the BDO Consulting website at
www.bdoconsulting.com. Commented [AW1]: Not sure if this is what you wanted to put
in there for Tim. I didn’t transcribe the last part of the interview
where you talked about him, so I thought this was a good
alternative.

65
CHAPTER 4 Commented [AW2]: This chapter could probably use some
more expansion, though I’m not sure how long someone wants to
read about this process w/o actually hearing how we found the
MARKETING TACTICS: ACQUIRING information.

FAMILY OFFICE CONTACT DETAILS

Family offices can be hard to not only identify, as
we’ve explored in Chapter 1, but they can also be
hard to contact. There are services out there, like
third party marketing firms, that can assist you in
your marketing efforts, but often times marketing
and capital raising is done in-house.

There are many techniques used in capital raising,

and as there are differences in family offices, there
are also differences in the way companies raise
capital. However, one thing will always be the
same: you need some information about your
target in order to contact them. That’s where
databases come into play.

Internally, teams can create their own databases

by compiling data and researching on their own,
though this takes time and effort that could be
spent on cultivating relationships and marketing
products. An alternative to this is finding a reliable
source for information, a provider of contact
details.

When choosing a family office database for your

capital raising needs, there are many things to
consider. This can include evaluating the company
your database will come from, the sort of service

66
they provide, what sort of refund they offer, etc.
These are all important factors to weigh when
choosing the right database for your needs.

Finding the Right Database

Here are 5 tips to finding the best database for

you and your company:

1. Do your homework. This means doing two

types of research: researching your needs and
what the company selling the database can offer to
you. What are others saying about the database
online? What does their website look like? Are
they open with who they are and what they offer?
Do they offer other products? Really get a feel for
the main players offering databases and evaluate
their products against each other.

More importantly, use this step to really define

your needs, what the “perfect” database includes,
and what you are capable of, including your
budget.

2. Know your budget. Before you can (or should)

go shopping, you must know what you can spend.
Also, be sure to plan for future database purchases
or updates to the data you initially receive. More
importantly, see what the company offers in terms
of updates or discounts to future versions. This
can be an area where you can save money in the
long run, which is more important than doing so

67
in the short run. Most quality databases will cost
more than $800 but less than $2,000.

Just remember that your budget can transcend

into future quarters if you have to replace the
database you purchase due to quality or need to
update it in the future. What sort of budget do you
have to set to take those realities into account?

The budget is more of an internal issue, somewhat

apart from the companies you evaluate, but know
that it can limit or hinder your ability to find
useful data. Knowing you budget leads to the next
point:

3. Look at all the factors, not just price. Putting

price as the deciding factor above everything else
is a mistake that could be costly and take a great
amount of time when searching for a replacement
database. A company may offer a relatively low
(or high) price, but that is not the only point of
comparison that you need to evaluate. Look at the
quality of data, the service they offer in addition to
the database and the potential for ROI (return on
investment). Consider what needs you have that
must be met, which database works best for you,
and the one that offers the best price once you’ve
considered the other factors.

68
Other Factors to Consider When Purchasing
a Database

a.) How the database is accessed. Is the database

only available online? That can be a problem
when you need 2-3 professionals accessing
the database at a time. Moreover, what
happens if the company goes under or takes
the database down? You’ve lost your
investment.
b.) Frequency of updates made to the database.
How often is the data being looked at,
updated, and added to?
c.) What is their definition of a family office? If
they don’t list this, ask them to ensure you
know what you’re buying.
d.) What is their definition of a contact? Is their
number reflective of offices or simply
contacts? Did they include the secretary in
their database from a large, well-known
family office?
e.) Do they include just family offices, or do they
include private equity firms?
f.) Do they include contacts with incomplete
listings? Know the percentage here.

4. Try to avoid buying more than you need.

Some databases offer thousands of contacts. The
quickly changing data within a family office
database may be useless before you can get to the
remaining prospects. Know what your capabilities
are and what you can realistically utilize from a

69
database. How many leads do you need? Consider
that the data may change every 6-12 months; how
quickly can you get through the data you
purchase?

5. Know the benefits of purchasing a database

from a particular company. For example, some
companies may not offer a refund, whereas other
companies may offer a refund of the purchase
price, or even a 2 times or greater refund. Keep in
mind that this data changes so frequently, so
remember to find a company that will recognize
and cater to your need for up-to-date information.

Remember, too, that even the best databases will

have a 2%-3% error margin for their data. Find
companies that can help you work with these
errors and hedge the risk of making a large
purchase for a product that loses its value quickly
because the information is no longer good.

Also, keep in mind the backing of the company;

does any sort of association or group back them?
Are they transparent in who they are and their
knowledge, or do they offer a generic email
address with no personalization? If their level of
service to you is so poor with you not even being a
customer yet, imagine what their level of service
will be once you are a customer.

When choosing a directory to use in your capital

raising ventures, you must choose wisely. This

70
requires you to make an educated decision that is
based on research, an understanding of where
your firm stands, and an understanding of what
you are actually purchasing.

71
3 Mistakes to Avoid

Here are the 3 top mistakes that companies

make when buying a directory:

1.) Paying too much. This deals directly to the

budget you set for yourself. Do not delude
yourself or convince yourself that you have
more to spend when in reality you do not. Be
realistic and do your research. Evaluate
companies and their products against one
another to really weigh and measure the pros
and cons associated with each directory
versus its cost.

Also in relation to cost, know the refund

policy of the companies you research and list
as potential providers of the directory you
seek. Do they offer any sort of refund? This
can be the best way to ensure your purchase
is a smart one and to ensure the information
you receive is up-to-date, valuable, and
relevant.

2.) Buying a directory that is not backed by great

service. Many companies offer a great
directory, but end their service there. They do
not offer anything of value to buyers, such as
free reports, free updates to the directory
their clients purchase, or free information on
a blog.

72
 Furthermore, most companies offering a
directory do not offer a networking event for
hedge funds, private equity firms, CTA funds,
real estate investment trust, investment
banks, institutional consultants, and third
party marketers to connect and communicate
with family office professionals.

3.) Buying a directory that can only be accessed

online. While this may be convenient in the
beginning, this sort of access does not allow
for you, as the buyer, to use the information
therein to its full potential. Data available
online can be difficult to upload or add to a
CRM program or be shared between multiple
team members if access is restricted to one
user at a time.

Moreover, if the company decides they no

longer want to offer the service, you are left
without the product you paid for. Buying a
directory that comes to you as a hard copy, or
even better, an electronic copy, allows you to
share the information with others on your
team to utilize their skills and use the
directory to its full potential. You are also able
to use the information until you find it is no
longer useful, not when the provider feels it is
no longer useful to offer.

Lastly, you do not have to pay to access the

data, access that may be cut off at one point or

73
 another due to a subscription ending or data
being moved. When you purchase a directory
that is fully delivered, you do not have to
worry about the information being taken
away.

Choosing a directory can be an expensive

investment that requires you to really give it some
thought and serious consideration in regards to
you and your company’s needs.

Do you need a directory that you can access

whenever you need to? A directory that you can
have open on 2 computers at once, or a directory
that you can take with you on the plane where you
may not have Internet access?

Weigh your options and know that most

companies ought to be transparent in the way
they market their directory, the support they
offer, and their policies. If something is unclear,
simply email or call the company or firm to see if
they can answer your questions; it is better to be
safe than sorry.

Overall, remember to be smart and to make an

educated decision. There are many things to
consider, and keeping the above in mind can help
you to make a better decision in the long run. Ask
questions, do your research, and compare
companies to see who offers a better product, can

74
meet your requirements, and does so within your
budget.

Ask Richard for more tips here on how to raise

capital.

75
APPENDIX:
RESOURCES
1. Amit, Raphael, Heinrich Liechtenstein, M.
Julia Prats, Todd Millay, and Laird P.
Pendleton (May 14, 2008). Single Family
Offices: Private Wealth Management in the
Family Context.
http://knowledge.wharton.upenn.edu/ar
ticle.cfm?articleid=1964
2. Bloomfield, Keith M. and Russ Alan
Prince. “Your Own Family Office”. 2010.
Forbes Media LLC.
3. Carroll, Jon. 2001. The Functions of a
Family Office. Journal of Wealth
Management. Vol 4 Number 2.
4. Ehlern, Steen. Family offices in Europe and
the United States – A different evolution
with common objectives. 2008. Notabene.
5. Family Office Exchange (FOX). “About
Family Offices”. Retrieved April 8, 2011
from
http://www.foxexchange.com/public/fox
/family/index.asp
6. Family Office Exchange (FOX). “Frequently
Asked Questions About Family Offices”.
http://www.foxexchange.com/public/fox
/faq.asp#12 Access date: 2011 APR 8.

76
7. Family Office Exchange (FOX). “Family
Office Exchange: Research on the Global
Financial Family”. 2000.
8. Foster, Lauren. Financial Times. (2007,
February 26). “Big or boutique for super
rich”. Retrieved April 12, 2011 from
http://www.ft.com/cms/s/2/6850b0ae-
c5cc-11db-9fae-
000b5df10621.html#ixzz1JLMSvnBz.
9. Hauser, Barbara R. “The Family Office:
Insights into Their Development in the U.S.,
a Proposed Prototype, and Advice for
Adaptation in Other Countries”. Journal of
Wealth Management. 2001. Vol 4 Number
2.
10. Investopedia. Terms, Retrieved April 12
2011 from
http://www.investopedia.com/terms/u/
uma.asp.
11. Knowledge@Wharton. “SFOs in Action:
How the Richest Families Manage Their
Wealth”. Retrieved from
http://knowledge.wharton.upenn.edu/ar
ticle.cfm?articleid=1964
12. Preqin. Preqin Research Report: Survey of
Family Offices in Private Equity. Retrieved
April 15, 2011 from
http://www.preqin.com/docs/reports/fa
mily_offices_survey_march_2010.pdf
13. Prince, Russ, Hannah Shaw Grove, Keith
M. Bloomfield, and Richard J. Flynn. The
Family Office -- Advising the Financial

77
 Elite. 2010. Charter Financial Publishing
Network.
14. Rothestein Kass. (2010). 'The Family
Office -- Advising the Financial Elite'
Released by Charter Financial Publishing
Network [Press release]. Retrieved from
http://www.rkco.com/Site/PDF/familiy
%20office%20afe%20release%20final%
2008-09-10.doc
15. Securities and Exchange Commission.
“Family Offices”. October 12th, 2010.
http://www.sec.gov/rules/proposed/201
0/ia-3098.pdf
16. The Capital Express Blog. What makes a
family office tick? Retrieved April 10, 2011
from
http://seekingalpha.com/instablog/4879
77-the-capital-express-www-
thecapitalexpress-com/28000-what-
makes-family-offices-tick-when-it-comes-
to-deciding-where-to-invest
17. Schuyler, David. “Vogel Consulting
indicative of multi-family office growth”.
The Business Journal. 10 OCT 2004.
Retrieved April 19, 2011 from
http://www.bizjournals.com/milwaukee
/stories/2004/10/11/focus2.html
18. Stephen Martiros & Todd Millay. A
Framework for Understanding Family
Office Trends. 2006. Retried from
http://www.cccalliance.com/FamilyOffic
eTrends.pdf

78
19. Economy Watch. Retried on April 15,
2011 from
http://www.economywatch.com/econom
ic-statistics/
20. CIA – The World Factbook. Retried April
20, 2011 from
https://www.cia.gov/library/publication
s/the-world-factbook/geos/ch.html
21. Federal Deposit Insurance Corporation.
Who is the FDIC? Retried April 21, 2011
from
http://www.fdic.gov/about/learn/symbo
l/index.html

79
GLOSSARY OF TERMS
Accredited Investor – Normally a wealthy
investor who meets certain Securities and
Exchange Commission requirements for net worth
and income as they relate to some restricted
offerings. An accredited investors can be an
institutional investors, company directors and
executive officers, high net worth individuals,
ultra-high net worth individuals, and other
entities. Some angel investor networks or limited
partnerships accept only accredited investors, so
being accredited can be beneficial.

Adviser – An individual or organization employed

by a fund to give professional advice on the fund's
investment and asset management practices. Is
also referred to as an investment adviser.

Alternative Investments – An alternative

investment is regarded as any investment product
other than traditional investments such as stocks,
bonds, money markets, and/or cash. This can
include private equity, venture capital, hedge
funds, and real estate. Alternative assets are
generally more risky than traditional assets, but
they should, in theory, generate higher returns for
investors if invested in properly. As such,
individuals and families with more wealth and a
higher risk tolerance often times prefer alternate
investments.

80
Angel Investor – Angels or Angel Investors are
individuals who provide capital to one or more
start-up companies. Unlike a partner, however,
the angel investor is rarely involved in
management of the firm. Angel investors can
usually add value through their contacts and
expertise, and will, at times, have non-executive
directorships in the companies in which they
invest.

Asset – Anything owned, such as real estate, cash,

etc., that has monetary value.

Asset Allocation – This is the process of

allocating or distributing assets in a portfolio to
maximize the potential return in accordance with
a particular level of risk from the asset owner.
Asset allocation does not guarantee against loss,
and is instead a method used to help manage the
risk inherent in investments.

Asset Class – A category of investments with

similar characteristics, making them part of a
class.

Asset Management – The process of controlling

and managing assets and liabilities to achieve high
returns and minimize risk/loss.

Assets/Capital Under Management (AUM) –

The amount of capital/assets that a management
team oversees and often times allocates to
investments.

81
Balanced Mutual Fund – A mutual fund whose
main objective is to create a balance of stocks and
bonds. Balanced funds tend to be less volatile than
stock-only funds, due to the fluctuation from
changes in the market observed by a mutual fund..
Additionally, shares of stock, when sold, may be
worth more or less than their original cost.

Bear Market – A term used when the market is

experiencing a prolonged period of declining stock
prices.

Bond – Evidence of a debt in which the issuer of

the bond promises to pay the bondholder(s) a
previously established amount of interest and to
repay the principal at maturity, or the end of the
bond period. Bonds are usually issued in multiples
of $1,000, though this can differ.

Bull Market – A descriptive term used when the

market is experiencing a prolonged period of
rising stock prices.

Capital Gain/Loss – A capital gain is experienced

when the sale price of a capital asset exceeds the
purchase price. Conversely, a capital loss arises if
the sale price of a capital asset is less than the
purchase price.

Capital Market – A market for securities where

companies and the government can raise long-
term funds. The capital markets include the stock

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and bond markets and consist of primary markets
and secondary markets.

Capital Raising – Refers to the active effort to

obtain capital from investors or venture capital
sources.

Cash Alternatives – Short-term investments, such

as certificates of deposit (CDs), U.S. Treasury
securities, or money market fund shares that have
a high liquidity..

Certified Hedge Fund Professional (CHP®) – a

100% online hedge fund training and certification
program completed in 6-12 months. The CHP
program is the most popular and trusted
certification program built exclusively by and for
hedge fund professionals to continue education
and improve hedge fund performance.

Closing – The final stage in the investment

process at which time all legal documents are
signed and funds are transferred. This is also a
term used in sales, similar to capital raising, where
the customer (here, the investor) has agreed to
purchase (invest) and the transaction
(investment) is completed.

Common Stock – A type of stock that normally

entitles the owner the right to vote at shareholder
meetings and to receive dividends that the
company pays out.

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Common Trust Fund – Maintained by a bank or
trust company, this fund is managed exclusively
for the collective investment of money for trust
customers.

Convertible – Designed as an added incentive to

invest in stock, convertibles are corporate
securities, usually preferred shares or bonds, that
can be exchanged for a set number of another
form, usually common share, at a pre-stated price.
These are appropriate for investors who want a
higher income than is available from common
stock and greater appreciation potential than a
regular bond offers.

Cost Basis – The reference point of an asset when

determining capital gains or losses, the cost basis
is the original cost of an investment.

Coupon Rate – The interest rate percentage that

an issuer of a debt security promises to pay over
the life of the security.

Discretionary Portfolio Management – Portfolio

management where a professional manager has
discretion or control over investments made on
behalf of a client. The portfolio manager, then,
assumes responsibility for all investment
decisions, and reports back to the client on a
regular basis. The portfolio manager will discuss
the client’s requirements (in terms of risk,
liquidity, etc.) and will manage the portfolio in
accordance with these requirements and

84
preferences. Once the client has chosen a
discretionary portfolio manager, little interaction
or involvement in the portfolio is needed on their
part, making this (as opposed to non-
discretionary portfolio management) an ideal
choice for busy individuals.

Distressed debt (or Vulture Capital) – A form of

finance used to purchase the corporate bonds of
companies that have either filed for bankruptcy or
are assumed to do so. Private equity firms and
other corporate financiers who buy distressed
debt don't usually asset-strip and liquidate the
companies they purchase. Instead, they see the
opportunity to make good returns by restoring
them to health and ultimately prosperous
companies. They first become a major creditor of
the target company, which gives them leverage to
play a major role in the reorganization or
liquidation stage.

Diversification – A risk management technique

that mixes a variety of investments in a single
portfolio. Designed to reduce the volatility of the
overall portfolio performance, diversification
involves investing in different companies,
industries, or asset classes in an attempt to limit
overall risk. Diversification may also include the
participation of a large corporation in a wide
range of business activities. Successful
diversification is dependent on the investor or
investment manager truly finding and investing in

85
different asset classes to offset the rise and fall in
prices of each asset, offsetting losses and gains
with the intent to minimize loss.

Due Diligence – Performed by investors or

external parties, this is the process of
investigation and evaluation into the details of a
potential investment or manager. It can include
the examination of operations and management,
and usually requires the corroboration of material
facts. Investing successful at a fund or company
level requires thorough investigation. When
considering a long-term investment, it is crucial to
review and analyze all aspects of the deal and fund
prior to signing an agreement or commitment to
invest. Capabilities of the management team,
performance record, deal flow, investment
strategy and legality concerns are other examples
of areas that are examined during this process.
(For more information on due diligence, please
see Tim Mohr’s interview in Chapter 3.)

Due Diligence Questionnaire (DDQ) – Richard

to define?

Equity – The value of an individual’s ownership in

real property or securities. It is also the market
value of a property or business after deducting
any claims and liens against it. The formula then
is: total assets - total liabilities = owner's equity
(or net worth/book value). In real estate, it is the
difference between what a property is worth and

86
what the owner owes against that property for
example, the difference between the house value
and the remaining mortgage or loan payments on
a house). It also refers to ownership interest in a
corporation in the form of common stock or
preferred stock.

Family Limited Partnerships (FLP) – A

sophisticated financial planning technique that
enables a family to efficiently hold and manage
their wealth. An FLP can be an ideal mechanism
for retaining the operating direction or control of
the family business or investment assets by the
senior family members or for developing a
succession plan for the future management of the
enterprise. It can also assist in the transferring of
family assets between generations at the lowest
permissible cost in estate and gift taxes.

Family Office – A wealth management firm

created to serve a family or families and
structured to offer integrated, interdisciplinary
services to these ultra-high net worth individuals.
Services can include wealth management,
investment management, succession planning,
estate planning, tax planning, and other support
services, such as education, concierge,
administrative, or accounting services.

Initially created as a single family office serving a

single family, many SFOs are opening their doors
and going the route of larger firms, offering

87
services to other families/clients. A family office
offers more personalized services and attention to
clients, though with the growing trend of single
family offices turning multi-family, this
personalization and targeted attention is in
decline. (See Single Family Office and Multi-Family
Office.)

Fee-Only – A planner or advisor who, in all

circumstances, is compensated solely by the client,
with neither the advisor nor any related party
receiving compensation that is contingent on the
purchase or sale of a financial product or
investment made. Fee-only advisors or planners
do not receive commissions, rebates, awards,
finder's fees, bonuses, or any form of
compensation from others.

Federal Deposit Insurance Corporation (FDIC)

– “The Federal Deposit Insurance Corporation
(FDIC) preserves and promotes public confidence
in the U.S. financial system by insuring deposits in
banks and thrift institutions for at least $250,000;
by identifying, monitoring and addressing risks to
the deposit insurance funds; and by limiting the
effect on the economy and the financial system
when a bank or thrift institution fails… The FDIC
insures deposits only. It does not insure securities,
mutual funds or similar types of investments that
banks and thrift institutions may offer.” (Who is
the FDIC?)

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Federal Income Tax Bracket – A range of income
that is taxable at a certain rate dependent on the
amount of income earned.

Fiduciary: A person, bank, or trust company who

has been placed in a position requiring them to be
faithful and trustworthy, and to perform their
duties in the best interest of the beneficiaries and
in accordance to fiduciary law.

Financial Statements – Written documents

reporting on the financial condition of a company.
These include the balance sheet, income
statement, statement of changes in net worth and
statement of cash flow. Public companies listed on
a stock exchange (who have shareholders) are
required by law to issue these financial statements
on a regular basis, and ensure that the information
provided is accurate.

First Stage Capital – Money provided to

entrepreneurs who have a proven product. This
capital is provided to assist in the beginning of
commercial production and marketing, not to
cover market expansion, de-risking, or acquisition
costs.

Fixed Income – An unchanging amount of income

earned from Social Security benefits or
investments, such as CDs, pension benefits, some
annuities, and most bonds.

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Foreign Exchange (FX) Market – Where
currency trading is facilitated. Purposed with this
facilitation of trade and investment, FX
transactions normally involve one party (for
example, banks, currency speculators,
corporations, governments, etc.) purchasing a
quantity of one currency in exchange for paying a
quantity of another. Today, it is one of the largest
and most liquid financial markets in the world.

Fund Administration Services – I can’t find a

good definition for this term…

Fundamental Analysis – An evaluation of the

stock market in order to determine the
favorability of a specific investment. Factors –
such as the return on equity, price-to-earnings
ratio, yield, or variability – are used to determine
this favorability.

Fund Of Funds – A collective investment in

securities (also referred to as a mutual fund)
whose assets are invested in other mutual funds,
as opposed to investments made directly in shares
or bonds.

General Partner – The top-ranking partners at a

private equity firm. It can also refer to the private
equity fund’s managing firm.

General Partner Contribution/Commitment –

The amount of capital that a fund manager
contributes to its own fund. This is an important

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way for limited partners to ensure that their
interests are aligned with those of the general
partner. Though the legal requirement of the
general partner to contribute at least one per cent
of fund capital was recently revoked by the US
Department of Treasury, this is still the usual
contribution of fund managers.

Gift Taxes – A federal tax (indexed for inflation)

imposed on the transfer of assets as a gift. This tax
is paid by the donor. The first $13,000 (per year)
from a donor to each recipient is exempt from tax.
Often times, states also impose a gift tax.

Hedge Fund – An aggressive, alternative

investment fund whose management objective is
to obtain the best possible output for the funded
capital, though these funds are often considered
more risky than other types of investments. With
that risk, however, comes the opportunity or
possibility of higher returns. Hedge funds invest in
diverse assets, and may use techniques such as
arbitrage, long or short positions, the buying and
selling of undervalued securities, trade options or
bonds, etc.

High Net Worth Individuals – An individual with

a high net worth. These individuals are usually
defined as having investable assets (capital/
financial assets) in excess of US$1 million.

Investment Advisory Services – Services offered

by a firm or individual who specializes in

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providing investment advice. All advisers of an
advisory service must be registered with the
Securities and Exchange Commission.

Investment Category – A broad class of assets

with similar characteristics. (Also referred to as an
asset class.) There are many investment
categories, including cash
alternatives/equivalents, fixed income (bonds,
debt), equity (stocks), mutual funds, and
alternative investments (options, futures, real
estate, etc.).

Institutional Investors – Usually insurance

companies, pension funds, or investment
companies collecting savings and supplying funds
to markets. This can also include other types of
institutional wealth like endowment funds,
foundations, family offices, etc.

Index – An unmanaged collection of securities

whose overall performance is used to indicate
stock market trends. An example of an index is the
often quoted Dow Jones Industrial Average, which
tracks the performance of 30 large U.S. company
stocks. The index also serves as a reference or
benchmark for comparing and evaluating stock
performance. The benchmark most often used for
stock market performance is the Standard &
Poor's 500® index, established in 1957, that
measures the average performance of 500 widely
held, large-company stocks.

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Interest Rate Risk – Risk measured by/based on
the possibility of already issued bonds losing
value due to the rise of interest rates, resulting in
a loss if they are sold before maturity.

Investment Grade – This refers to the quality of a

company’s credit. This rating/grade is issued to
companies to assist investors and to estimate or
predict the risk associated with that company, and
the probability of a company repaying its issued
debts (or, the investor experiencing a loss).
Grades are based on two bodies, the S&P and
Moody’s.

S&P grades are: AAA, AA, A, BBB, BB, B, CCC, etc.,

and Aaa, Aa, A, Baa, BA, B, Caa, Ca, C are Moody's
grades. These grades are similar to one another,
and anything under an A rating of some sort
indicates a higher risk, though the single “A” from
the S&P also indicates moderate risk. Anything
beyond the moderate risk rating (BBB for S&P, B
for Moody’s) is often considered a “junk bond”.

Investment Policy Statement – A document

noting the investment plan and commitment to a
disciplined strategy. This should contain a well-
explained purpose of the policy statement, a
review of the objectives for the investment
program, specific asset allocation policies,
securities guidelines, money manager selection
criteria, and specific money manager performance
monitoring procedures. Like a business or

93
marketing plan, this will help everyone to keep
up-to-date with what the goals are, and how
success is measured.

Investment Portfolio – See Portfolio.

Leverage – A process where various financial

tools and instruments are implemented to
increase the potential return on an investment.
This also refers to the amount of debt a company
has borrowed to finance (or invest in) business
operations, which has the opportunity to increase
value to shareholders. Though this is a benefit to
both the investor and the company, it also
constitutes more risk because while leverage can
increase (or magnify) gain, it can also magnify
loss.

Limited Partners – Institutions or individuals

that contribute capital to an investment of some
sort. LPs can typically include pension funds,
insurance companies, asset management firms,
and fund of fund investors. These firms often
perform due diligence (or should) to find a fund or
investment to contribute capital to.

Limited Partnership – A form of partnership that

involves one or more general partners and one or
more limited partners. The partnership pools the
money of investors to invest as a whole, and
limited partners are only liable for the amount
they invest. Limited partners do not have the same
management or liability requirements as general

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partners, as GPs assume full liability for debts.
This is a frequently used structure for hedge
funds, private equity funds, and real estate. There
are no assurances that the stated investment
objectives will be reached, however, and at
redemption, the investor may receive back less
than their original investment.

Liquidity – The characteristic of an asset that

refers to the speed in which it be converted into
cash without a significant loss of value.

Management Fees – Fees that are paid to an

investment advisor for their investment portfolio
management and services.

Maturity Date – The date a bond will mature,

resulting in the principal borrowed to be repaid to
the current owner/buyer of the bond.

Mezzanine Debt – Subordinated debt that

incorporates equity-based options, such as
warrants, and is only prioritized above common
stock.

Money Market Fund/Account – A mutual fund

that specializes in investing in short-term
securities. A main goal of a MMF is to maintain a
constant net asset value of $1 (meaning, if you
invest $1, you expect to get $1 back). Despite this
goal, it is possible to lose money when investing in
a money market fund. These funds are neither
insured nor guaranteed by the Federal Deposit

95
Insurance Corporation (FDIC) or any government
agency.

Multi-Family Office (MFO) – A form of the family

office that serves more than one family or client.
In general, the MFO aggregates and focuses
resources to facilitate a common interest in asset
protection, cost control, financial education, family
philanthropy, in addition to a host of other needs.
MFOs have historically provided customized
service levels and confidentiality not available
from larger product-driven financial institutions,
though with more clients, personalization is often
lost in the shuffle. (See Family Office and Single
Family Office.)

Multi-Strategy Account – A variation on a

separately managed account (SMA), this account
uses the investment strategies of multiple
managers to run an investor's portfolio. As such,
different sub-accounts can be created and run
separately by managers with that relevant
expertise. This allows investors to get professional
investment management and asset diversification
in the same account.

Municipal Bond – A debt security issued by

municipalities, a state or local government,
government agencies, or other subdivision, such
as a school or hospital. These are often created to
finance a specific project or purpose, and the
income from interest earned on these bonds is

96
usually exempt from certain income taxes. If you
sell a municipal bond at a profit, you are subject to
incur capital gains taxes. The principal value of
bonds fluctuates with market conditions. Like
other normal bonds, if these are sold prior to
maturity, they may be worth more or less than
their original cost.

Mutual Fund – A collection of stocks, bonds, or

other securities purchased and managed by an
investment company with funds from a group of
investors. The return and principal value of
mutual funds fluctuate with changes in market
conditions, and as with any investment, shares
when sold or redeemed may be worth more or
less than their original cost. Mutual funds will
have a fund manager that trades pooled assets on
a regular basis.

Net Asset Value – Used most often when referring

to mutual funds, this is the per-share value of that
mutual fund's current holdings. The net asset
value is calculated by dividing the net market
value of the fund's assets by the number of units,
or in this example, shares. Essentially, this is the
market value of a mutual fund's total assets after
deducting liabilities, divided by the number of
shares outstanding.

Net Worth – In reference to the net worth of an

individual or company, this is the remaining dollar
value after liabilities (what you owe) are deduced

97
from assets (what you own). For example, a firm
with $1,500,000 in assets and $1,750,000 in
liabilities has a net worth of ($25,000).

Pitch – An activity (or activities) intended to

persuade, convince, or encourage someone to take
a specific course of action, such as making a
purchase or making a commitment to invest. This
process is used when capital raising or marketing
of a fund/investment.

Portfolio – The collection of investments, a list of

group of financial assets, held by an individual,
bank, or other financial institution (such as an
RIA). This could be held in a mutual fund, for
example.

Portfolio Management – The management of a

list of financial assets (portfolio). Depending on
the needs and investment goals of the portfolio
owner, the portfolio can be managed by a private
bank, a wealth management firm, a fund manager,
or by the owner of the portfolio itself.

Preferred Stock – When held, preferred stock

gives the holders guaranteed priority in dividend
payments, but does not give the stock holder any
voting rights.

Preservation of Capital – An investment

objective that aims to maintain the principal value
of your investments. Typically, investors with this
objective are interested in investments that have

98
historically demonstrated a very low amount of
risk of loss of principal value.

Price/Earnings Ratio (P/E Ratio) – This ratio is

frequently used to as a measurement and analysis
tool of a stock’s worth. This ratio is the market
price of a stock divided by the company's annual
earnings per share.

Prime Brokerage – A special package/group of

bundled services offered by securities firms or
investment banks (brokers) to hedge funds or
other professional investors. These services can
include (but are not limited to) portfolio
reporting, leveraged trade executions, cash
management, capital introductions, securities
lending, compliance and risk management, and
others.

Principal – The amount of money that is invested

in a security, excluding earnings. In a debt
instrument, such as a bond, it is the face amount.

Private Equity – Equity securities of unlisted

companies. Private equities are generally illiquid,
and much less liquid than publicly traded stock. It
is also often thought of as a long-term investment
and not subject to the same high level of
government regulation as stock offerings to the
general public.

Prospectus – A document provided by

investment companies to prospective investors

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giving necessary information to investors in order
to make informed decisions prior to investing in a
specific mutual fund, variable annuity, etc. The
prospectus should include information on the
company’s past performance and objectives,
relevant expenses (such as fees, sales charges,
etc.), any minimums on investment amounts, the
company’s risk level, and a description of the
services provided to investors in the investment
company.

Real Estate – Normally refers to land, property on

land, such as permanent structures, and any
accompanying rights or privileges, such as crop
productions or mineral rights.

Realized Capital Gains – When a stock increases

in value and is sold for a higher price than the
original purchase price, a capital gain is realized.
This gain is taxable if the stock was held in a
taxable account.

Registered Investment Advisor (RIA) – An

entity who, for compensation (of any kind),
engages in the business of advising others, either
directly or indirectly, of the value of securities or
of the advisability of investing in securities. They
receive a management fee and do not receive
commissions. To become a Registered Investment
Adviser you must register with the Securities and
Exchange Commission (SEC).

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Return on Investment (ROI) – The profit or loss
resulting from an investment transaction, usually
expressed as an annual percentage return. This
ratio helps to easily show the net benefits of a
project verses its total costs.

Risk – The probability that an investor will lose all

or part of an investment due to market changes or
fluctuations affecting that investment.

Risk Management – Actions taken (such as the

purchase of insurance) to protect against
catastrophic financial losses (for instance,
disability and liability). Risk management is an
important investing requirement for any investor.

Risk Tolerance – An investor's personal ability or

willingness to withstand declines or losses in an
investment caused by one or more of the different
types of investment risk. This risk tolerance can
be limited by the investor's disposition as well as
his/her goal objectives and investment time
frame. For example, goals set far into the future
allow for a higher risk tolerance, where as short-
term goals may have a lower risk tolerance.

Securities –Stocks and bonds.

Securities and Exchange Commission (SEC) – A

federal agency whose goals are to promote full
public disclosure about investments and protect
the investing public against fraudulent and
manipulative practices in the securities markets.

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Seed Capital – Seed Capital is the money used to
purchase equity-based interest in a new or
existing company. This seed capital is usually
quite small because the venture is still in the idea
or conceptual stage.

Separately Managed Accounts (SMA) – A

portfolio of assets under the management of a
professional investment firm. In the U.S., the
majority is referred to as Registered Investment
Advisors (RIAs). One or more portfolio managers
are responsible for day-to-day investment
decisions, supported by a team of analysts,
operations and administrative staff. Unlike a
mutual fund, each portfolio in an SMA is unique to
a single account.

Single Family Office – Though there is no “one-

size-fits-all” definition here, a family office can
generally be defined as a comprehensive, full-
service wealth management firm created to
manage, invest, and grow the assets of its client,
the family. The single family office was a necessity
created for ultra-high-net-worth wealthy
individuals, and was created to service their
unique needs as a family with common goals and
succession wants. See Family Office and Multi-
Family Office.

Strike Price – A fixed price that an option owner

can purchase or sell an underlying security or
commodity, regardless of the market price.

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Stock – A security that represents a unit of
ownership in a corporation, and signifies an
ownership position (called equity) in a
corporation. Stock (whether preferred or
common) also represents a claim on its
proportional share in the corporation's assets and
profits (referred to as dividends). Ownership in
the company is determined by the number of
shares owned by an individual divided by the total
number of shares outstanding.

Stock Picking – The selecting of shares according

to their prospects for inherent results rather than
their belonging to a specific branch of industry.
Performances of the selected shares may be
higher than those of the market index.

Tax Credit – The most appealing type of tax

deductions, these credits are subtracted directly,
dollar for dollar, from your income tax bill,
resulting in a lower amount owed on income
earned.

Tax Deferred – Interest, dividends, or capital

gains that grow untaxed in certain accounts or
plans until they are withdrawn.

Tax-Exempt Bonds – Under certain conditions,

the interest from bonds issued by states, cities,
and certain other government agencies is exempt
from federal income taxes. (For example, a
municipal bond.) If a tax-exempt bond is sold at a
profit, capital gains taxes could be incurred. The

103
principal value of bonds fluctuates with market
conditions, and if sold prior to maturity, a bond
may be worth more or less than the purchase
price..

Total Return – The total of all earnings from a

given investment. This includes interest,
dividends, and any capital gain earned after
selling.

Trust – A legal entity created by an individual

where one person or institution holds the right to
manage assets for the benefit of another
individual. There are various types of trusts,
including living trusts, testamentary trusts, etc.

Revocable Trust – A trust in which the creator

reserves the right to amend or terminate the trust.
Conversely, an irrevocable trust is a trust that
cannot be modified or terminated by the trustor
after it is created.

Trust Company – A separate corporate entity

owned by a bank or other financial institution, law
firm, independent partnership, etc. Its function is
to manage trusts, trust funds, and estates for
individuals, businesses and other entities. The
trust company acts as the trustee for the client
(individual, company, etc.) and carries out the
objectives and strategies laid out in an agreement,
such as managing a portfolio, financial planning,
etc.

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Trustee – An individual or institution appointed
to administer a trust for its beneficiaries. This can
also be a bank or trust company that must
perform in a manner based on the conditions set
forth in a trust agreement.

Ultra High Net Worth Individuals – Individuals

or families that have at least $30 million in
investable assets. This minimum can change
depending on the institutional investor, wealth
management firm, or bank handling their assets.

Unrealized Capital Gains – When a stock price

exceeds the cost for which the stock was
purchased, the stock holder experiences an
unrealized capital gain. These are not taxable until
the stock is sold, turning the gain into a “realized
capital gain”.

Venture –A term often used to refer to a risky

start-up or enterprise company. While the risks
are usually higher in these types of investments,
UHNWIs are drawn to these investments because
of their excess assets to invest and the possible
high return on investment.

Venture Capital Firm – An investment company

that invests its shareholders' money in startups
and other risky (but potentially very profitable)
ventures.

Venture Capital Funds – A collection of investors

seeking private equity stakes in small and

105
medium-size enterprises with strong growth
potential.

Vertical Spread – A strategy used in options by

simultaneously carrying out the buying and selling
of two options of the same class and with the same
due date but different strike prices.

Volatility – The range of sharp price

fluctuation/swings of a security or market over a
specific period of time. This constitutes an
indicator of risk; the higher volatility, the higher
the risk.

Wealth Management – A type of financial

planning that provides high net worth individuals
and families with not only investment
management, but also estate planning, legal
resources and tax planning expertise, with the
goal of sustaining and growing long-term wealth.
A main objective of wealth management is not
only to preserve wealth but to grow it for future
generations.

Wealth Management is a term used in the banking

industry to describe a bank, family office, or other
institution that provides banking, financial, and
other wealth management services (such as
investment services, tax planning, etc.) to private
individuals who are considered UHNWI or HNWI.

Yield – Normally, this is the amount of current

income realized by an investment. For stocks, the

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yield is calculated by dividing the total of the
annual dividends by the current stock price. For
bonds, the yield is calculated by dividing the
annual interest by the current price. The yield is
distinguished from the return, which includes
price appreciation or depreciation.

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WHO IS THE FAMILY OFFICES
GROUP?
The Family Offices Group (FOG) is a global
networking association for family offices and
investors, serving as a networking tool to connect
and communicate with other members in the
family office space. The FOG provides information
on family office events and conferences in the
industry, as well as information on the
investments industry and factors that affect the
family office market.

As a member of the networking association,

individuals can find free resources on the Family
Offices Group website and access to a member's
only forum. Founded by Richard Wilson in 2007,
the FOG now has more than 21,600 members.
After working in risk consulting, third party
marketing, and capital introductions, creating the
FOG was an easy decision, and it has been growing
ever since.

The FOG serves as more than just a networking

association, offering resources and tools for those
looking to work in and with family offices. Those
resources include the Family Offices Group blog
(at the FOG site - familyofficesgroup.com), a free
Family Offices Book (available for download on
the Family Offices Group website), and capital

108
raising tools for the investor looking to work with
family offices.

The FOG sponsors the Family Office Database, a

database filled with comprehensive contact details
on a portion of the family offices in business. As
this book shows, there are thousands of family
offices in existence, the exact number very much
unknown. With many offices not considering or
identifying themselves as family offices, this
number is even more difficult to define.

The FOG’s Family Office Database contains 1,000

offices from around the world with contact details
and information on the office, like what they
invest in, when they began managing wealth, and
who is involved in the office.

Also seen above, working with family offices can

be a difficult task, and having all of the tools
available to you to assist can make all the
difference. A tool like a database of contact
information can be helpful, but it is just that: a
tool. The real work and “magic” made can be seen
when actually creating relationships, doing
further research on the offices you’d like to target,
and by targeting offices correctly.

As can be seen in other marketing, offering things

that are relevant and important to people is an
important part of the puzzle, and requires
knowledge, intuition, and an understanding of that
target to really speak to them and make an impact.

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Databases like the Family Offices Database will be
the first step in a process of relationship building
that will cut hours out of your workload, but it will
not do the work for you. We’ve spent the better
part of the past three years doing the research for
you and compiling into a user-friendly database in
Excel that is easy to export and easy to sort,
making your life easier, and allowing you more
time to focus on the important part of marketing,
which is relationship and rapport building.

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