How much AUM for family office

Hey everyone-

Was wondering what the minimum required AUM is for a family office to make sense. Of course, you could run a family office with 20 million, but that wouldn't make much sense. What about 100 million? or 250 million?

At what point does it make sense to start a private family office vs using an ultra high networth RIA that only takes clients over 15 million (which would typically have lower fees, better alternative investment relationships). 

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Comments (5)

  • Analyst 1 in IB-M&A
Mar 30, 2021 - 11:13pm

Think it might be hard to get a qualified person to answer this question... only so many family offices and many of them are super private and wouldn't reveal industry secrets. worth a try

Most Helpful
Mar 31, 2021 - 1:03pm

I think this is right.  OP, I worked at one of the UHNW RIAs that you alluded to, and I'd say we provided value to anyone who had $250M or less in investment assets.  Above that threshold, it depends.  For example, some large family offices would outsource certain functions to us (e.g. a large real estate family office wanting us to manage their stocks/bonds, or others who do the opposite and want access to private credit/real estate deals).  One big value we provided was access to alternatives with fee discounts that generally offset our entire advisory fee - this gives you access to illiquid things at basically no cost, vs. hiring an internal team to diligence them, etc. and likely not having the size required to have any sort of bargaining power.  I worked with a lot of family offices in my prior role and would say that under $250M it's going to be hard to make things pencil out.  Even then, I'd say you want to be pushing $500M+ before you move entirely in-house. 

The larger family offices ($1-2bn+) I worked with all had CIO/CEOs with impressive backgrounds.  Comp structure for a good CIO at the reputable places I saw was $1-2M all-in with ability to coinvest alongside the principal in deals (it's a long story but I actually had to poll a bunch of the managers we work with for a client project).  I would say that's standard cost to get a CIO who is competent and you could trust managing your investments.  To put it differently, my bosses were each pulling in $8-10M per year as an outsourced advisor to family offices and UHNW clients - they'd be the type of people who are qualified to step in to a family office CIO/CEO role, but can make much more money doing it on their own.  At that level, it's hard to attract people to the job unless they have a lot of autonomy and upside potential.  Pair that with the on staff estate planning, accounting, misc other operational/assistant-type people, and you're probably looking at $3M or so to employ a full staff, maybe closer to $4M when you consider office space and systems, etc.  At $250M this is a pretty high cost for something you can accomplish by outsourcing.  Plus, at $250M, you'll get access to some alternatives, but won't be able to get in with size that gives you any sort of bargaining power over fees.

There are certainly smaller "family offices" that are run by the principal(s) and outsource certain functions, but I would say that's more a case of "I manage my own money while employing an accountant/estate planner" and less "I employ a bunch of people to handle my entire estate for me."  I'd say above $2bn in size, most of the family offices I worked with were very sophisticated, but you'd be surprised how many $1-2bn family offices were very poorly run and arguably much better off just hiring an advisor and outsourcing the estate planning/accounting to someone else.

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