A version of this article first appeared in CNBC’s Inside Wealth newsletter by Robert Frank, a weekly guide for high-net-worth investors and consumers. sign up Receive future editions directly to your inbox.
A typical family office costs more than $3 million a year to operate as competition for talent drives up labor costs, according to a new study.
According to JPMorgan Private Bank’s Global Family Office Report released this week, wealthy families spend between $1 million and more than $10 million a year to run a family office, with the average currently spending about The amount is 3.2 million dollars. While costs vary widely by asset, experts say the explosion in the size and number of family offices and direct competition from private equity, hedge funds, and venture capital are driving costs up across the board. It says that there are.
“There’s a real war for talent going on within family offices,” said William Sinclair, U.S. head of JPMorgan Private Bank’s family office practice. “They’re competing for talent with private equity, hedge funds and banks.”
Of course, smaller family offices spend less. The report, which looked at 190 family offices with average assets of $1.4 billion, found that family offices with less than $500 million in management costs spend an average of $1.5 million a year on operating costs. Family offices between $500 million and $1 billion spend an average of $2.7 million, and family offices worth $1 billion or more spend an average of $6.1 million. 15% of family offices spend more than $7 million, and 8% spend more than $10 million.
The biggest cost is personnel, which has become even more expensive as the number of family offices has tripled in the past five years. Recruiters say family offices are increasingly competing with each other for senior talent.
More importantly, family offices are moving more of their investments into alternatives such as private equity, venture capital, real estate and hedge funds. According to JPMorgan research, U.S. family offices have more than 45% of their portfolios in alternatives, compared to 26% in stocks.
As they expand into alternative fields, they are increasingly competing directly with large private equity firms, venture capital firms, and deal advisors for top talent.
“Over the past decade, we have seen the professionalization and institutionalization of family offices,” says Trish, founder and managing principal of Botoff Consulting, which advises family offices on recruitment and staffing.・Mr. Botoff says. “They are growing their investment teams and hiring staff from other investment and private equity firms, which is having a big impact on compensation.”
According to a family office survey conducted by Botoff Consulting, 57% of family offices plan to hire more staff in 2024, and nearly half plan to give existing staff raises of 5% or more. A frenzy in demand for talent in 2021 and 2022 has seen overall family office salaries rise 10% to 20% since 2019, experts say.
The average compensation for a chief investment officer at a family office with less than $1 billion in assets is about $1 million, Botoff said. He said the average compensation for CIOs who oversee more than $10 billion is just under $2 million. Botoff said more family offices are adding long-term incentive plans, such as deferred compensation, on top of base pay and bonuses to make their packages more generous.
Competition has also led to higher salaries for lower-level staff. Botoff said the family office where she worked hired junior analysts for $300,000 a year.
“The family office decided to wait a year,” she said.
Competition from private equity firms is particularly costly. A growing number of single-family offices are doing direct deals, buying shares directly in privately held companies, and are poaching talent from big private equity firms like KKR, Blackstone and Carlyle.
“That’s the biggest challenge,” said Paul Westall, co-founder of family office advisory and recruitment firm Agreus. “Family offices cannot compete with large PE firms at a senior level.”
Instead, family offices are hiring mid-level managers from PE firms and giving them more authority, better access to deals and higher salaries, Westall said. Family offices, like PE firms, may now give new PE employees “carry” (meaning a share of the profits when a company is sold privately).
He said better pay, access to billionaires and their networks, and the benefits of “not feeling like just a cog in a bigger wheel” make family offices a more attractive place to work.
“If you look back 15 years ago, family offices were places where people retired and had work-life balance,” he said. “That’s all changed. Now they’re attracting top talent and paying their employees. And that’s making them competitive with big corporations and banks.”
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