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typical family office A new study shows operating costs exceed $3 million a year as competition for talent drives up employee expenses.
According to a J.P. Morgan Private Bank Global Family Office Report released this week, wealthy families spend between $1 million and more than $10 million a year to run their family offices, with average expenditures now about $3.2 million. While costs vary by asset, experts say fees are growing across the board as family offices surge in size and number and compete more directly with private equity, hedge funds and venture capital.
“There is a real war for talent within family offices,” said William Sinclair, U.S. head of family offices at JPMorgan Private Bank. “They are competing with private equity, hedge funds and banks for talent.”
Of course, smaller family offices spend less. The report surveyed 190 family offices with average assets of $1.4 billion. Family offices with assets under management of less than $500 million spent an average of $1.5 million in annual operating costs. The average payout for family offices with assets between $500 million and $1 billion was $2.7 million, and the average payout for family offices with assets over $1 billion was $6.1 million. Fifteen percent of family offices spent more than $7 million, and 8% spent more than $10 million.
The largest cost is staffing, which becomes more expensive as a family office grows. The quantity has tripled the past five years. Competition among family offices for top talent is increasing, recruiters say.
What’s more, family offices are shifting more of their investments into alternative investments, including private equity, venture capital, real estate and hedge funds. According to a survey by J.P. Morgan, more than 45% of U.S. family office investment portfolios are in alternative investments, compared with 26% in stocks.
As they expand their reach into other areas, they are increasingly competing directly with large private equity firms, venture capital firms and deal advisors to bring in top talent.
“Over the past decade, we have seen the professionalization and institutionalization of the family office space,” said Trish Botoff, founder and managing principal of Botoff Consulting, which advises family offices on recruiting and staffing. “They are building their own investment teams and hiring from other investment firms and private equity firms, which is having a huge impact on compensation.”
A family office survey conducted by Botoff Consulting shows that 57% of family offices plan to hire more employees in 2024, and nearly half plan to increase the salary of existing employees by 5% or more. Experts say overall family office salaries have risen 10% to 20% since 2019 due to frantic demand for talent in 2021 and 2022.
Botoff said the average compensation for chief investment officers of family offices with assets below $1 billion is about $1 million. The average compensation for a CIO responsible for more than $10 billion in assets is just under $2 million, she said. Bottorff said a growing number of family offices are adding long-term incentive plans, such as deferred compensation on top of base salary and bonuses, to boost compensation packages.
Competition has pushed up wages even for lower-level workers. Bottorff said one family office where she worked was recruiting a junior analyst with an annual salary of $300,000.
“The family office decided to wait a year,” she said.
Competing with private equity firms is particularly costly. As more single-family offices engage in outright transactions, buying stakes directly in private companies, they try to attract talent from large private equity firms such as KKR, Blackstone and Carlyle.
“That’s the biggest dilemma,” said Paul Westall, co-founder of Agreus, a family office consulting and recruitment firm. “Family offices can’t compete at the top with large private equity firms.”
Instead, Westall said, family offices are recruiting mid-level managers at private equity firms and giving them more power, better dealmaking opportunities and higher salaries. Similar to private equity firms, family offices now sometimes offer new private equity hires a “carryout,” a share of the profits from the sale of a private company.
Higher salaries, access to billionaires and their networks, and the benefit of “not feeling like you’re just a cog in a big wheel” are making family offices a more attractive place to work, he said.
“If you look back 15 years ago, family offices were where people went to retire and achieve work-life balance,” he said. “That’s all changed. Now they’re bringing in top talent and paying their employees, which puts them in competition with big companies and banks.”
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