3 Things Family Offices Do Better Than Pension Fund Investors

publicfundsWhere do the super rich go to manage their money? Often times, the needs of wealthy people cannot be met with a financial advisor or bank, thus the creation of the family office – a vehicle reserved to manage the financial and personal affairs of a wealthy family. Microsoft founder Bill Gates, worth an astounding US$ 81.6 billion, has Kirkland-based Cascade Investment, LLC as his family office; Michael Larson manages it. Larson chose the name Cascade Investment to avoid the public spotlight. Other billionaires have a family office like Michael Dell, who has MSD Capital, L.P. and investment guru George Soros with a US$ 25 billion plus family office. These families offices rival the sizes of some sovereign wealth funds and pensions. The large family offices typically are professional in nature, hiring talent off Wall Street and former hedge fund managers. For example, MSD Capital has over 100 employees, with offices in Los Angeles, New York and London. John Phelan co-manages MSD Capital with a background working at ESL Investments, Zell-Merrill Lynch Real Estate Opportunity Funds and Goldman Sachs. Dell’s family office invests in private equity, distressed securities, hedge funds, real estate and listed equities.

Depending on the fund investor, sometimes the consultant has near regal power, causing great fear among private equity funds, real estate funds and traditional asset managers.

These billionaire-backed family offices share some characteristics with sovereign wealth funds. Both sovereign funds and asset-heavy family offices are typically long-term in nature and unconstrained by classic liability structures, such as pension payouts. What can the average U.S. public pension learn from family offices, or at least the offices’ with successful track records?

1. Access to Unique Club Deals and Unique Private Equity Opportunities
In many circumstances, family offices are tied to a billionaire industrialist or technology guru (Bill Gates, Microsoft). These CEOs and former CEOs naturally have deep networks of contacts and advisors, giving their family offices deal flow. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]


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