Key Takeaways
- • Ernst & Young partner Catherine Fankhauser says family offices are so heterogeneous in valuation, size and investing missions that they are nearly impossible to categorize, which can create "choppiness" for CFOs treating them as a capital source.
- • EY defines a family office as a business owned or operated for a particular family that provides tax planning, legal advice, investor advice and concierge services; the SEC excluded family offices from the investment adviser definition in 2011.
- • Family offices are described as often less constrained by regulation and offering "patient capital" with longer horizons than the five-to-seven-year terms typical of private equity.
- • Family office investors typically weigh after-tax impact more heavily than private equity investors, though tax "is not going to drive things," according to EY's Joseph Medina.
- • CFOs should clarify reporting cadence expectations early, since information is often needed at specific times for tax compliance, and must protect family privacy.
Summary
EY's Catherine Fankhauser told CFO Dive that family offices differ so widely by valuation, size and investing mission that they are difficult to categorize, a diversity she said makes them a non-homogeneous source of capital for finance leaders. EY views a family office as a business owned or operated for the benefit of a particular family, typically providing tax planning, legal advice, investor advice and concierge services. Bank of America defines the entity as a private company with employees that manages a family's assets and needs. The SEC clarified their status in 2011 by excluding them from the definition of investment advisers.
The article notes that the sector is lightly regulated, and that the 2021 collapse of Bill Hwang's Archegos Capital Management highlighted its risks, according to a 2023 Congressional Research Service report. Many family offices are multi-generational organizations with substantial fortunes. Examples cited include the office of Walmart's heirs, according to CNBC, and AC Limited, the family office of Sheikh Mohamed bin Zayed Al Nahyan, which Bloomberg reported has a dealmaking team believed to manage assets worth tens of billions of dollars. Fankhauser estimated the global investible capital of family offices in the "triple digit trillions."
For CFOs pursuing family office capital, Fankhauser described a "dichotomy": offices can be idiosyncratic, but are often less constrained by regulation than other investors and tend to offer more patient capital, since they do not answer to public stockholders. She noted they want returns but often think on a longer horizon than private equity. Medina, a partner in EY's private tax group, said missions can vary across generations, so a single family may need to address multiple time horizons. Family office investors also generally show more interest than private equity in after-tax outcomes.
Medina advised CFOs to confirm the family office's reporting cadence expectations, since information is important for transparency and is often needed at set times for tax compliance. Both advisers urged CFOs to ensure their goals align with the family, which does not want to be treated as a "checkbook," and to protect family privacy, with Fankhauser warning that breaching confidentiality would end the relationship quickly.
The article notes that the sector is lightly regulated, and that the 2021 collapse of Bill Hwang's Archegos Capital Management highlighted its risks, according to a 2023 Congressional Research Service report. Many family offices are multi-generational organizations with substantial fortunes. Examples cited include the office of Walmart's heirs, according to CNBC, and AC Limited, the family office of Sheikh Mohamed bin Zayed Al Nahyan, which Bloomberg reported has a dealmaking team believed to manage assets worth tens of billions of dollars. Fankhauser estimated the global investible capital of family offices in the "triple digit trillions."
For CFOs pursuing family office capital, Fankhauser described a "dichotomy": offices can be idiosyncratic, but are often less constrained by regulation than other investors and tend to offer more patient capital, since they do not answer to public stockholders. She noted they want returns but often think on a longer horizon than private equity. Medina, a partner in EY's private tax group, said missions can vary across generations, so a single family may need to address multiple time horizons. Family office investors also generally show more interest than private equity in after-tax outcomes.
Medina advised CFOs to confirm the family office's reporting cadence expectations, since information is important for transparency and is often needed at set times for tax compliance. Both advisers urged CFOs to ensure their goals align with the family, which does not want to be treated as a "checkbook," and to protect family privacy, with Fankhauser warning that breaching confidentiality would end the relationship quickly.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.