Would you work for a family office?

starmine17's picture
Rank: Chimp | banana points 12

3 years into my current gig at an equity L/S fund (started out of undergrad) that's getting hit with redemptions so I'm looking to get out ASAP. I am weighing a few options at the moment:

(i) MM PE associate, 2 funds with total AUM 500MM-1B range. Good comp package offered and solid team but not much of a track record of exits yet.

(ii) Family office of successful investor/entrepreneur. Small team (<10 professionals) running ~1B investing in both private and public. Approach is long-term and concentrated. Owner very involved in investment process and day-to-day, was senior PM at top fund for a decade. Comp may be on par to 10-15% lower than PE option.

(iii) MF PE associate, process ongoing--no offer yet.

Would like to hear some thoughts on the relative merits of these options, especially on #2.

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Comments (27)

Apr 18, 2017

bump. any advice guys?

Apr 18, 2017

How long has the family office been around for? Do you want to run your own fund in the future?

Apr 18, 2017

You have three years already on the buy side. I think your question can be a little more direct and precise in the title.

    • 2
Apr 18, 2017

Option 2 sounds pretty nice... (I'm biased and never did PE though).

-No worries about capital redemption
-Get to work for a guy that has clearly been successful
-Probably not an up or out model
-Mentorship and the founder probably has a great network.

Follow how Eddie Lampert got started with Richard Rainwater and all of the people that tie back to the Bass family. Its informative.

    • 5
May 5, 2017

Well both have the benefit of no redemptions on the short term, so you're probably in a good place either way.

I think this answer really depends on what you want to do in the future (think the next job after) - if you want to open up more exit opps for yourself, PE will probably give you a layer of flexibility. I used to be at a long-only and we had a few guys hop in and out of family offices since a lot of them tend to have somewhat similar culture and investment style (longer horizon, real money, value). Most of these places people stay forever.

Generally PE will be a bit more of a crunch and pretty hierarchical, might be different than what you're used to now at LS HF depending on the investment style. Less direct work, more bureaucracy. Less thinking more model churning. But a lot of financial engineering so if you're concerned about redemptions, the land of captive assets is pretty sweet. MF PE will definitely grind you down a lot harder so you might want to think about lifestyle. However, you'll probably have a wider set of exit opps if you do a stint in private markets. LS -> PE is sometimes a difficult transition since most PE would rather just take bankers (more similar model).

The family office opportunity sounds really interesting if that's what you're interested in longer term. I would look really closely at the culture of the firm and if you like the people there. Those kind of shops that I've encountered can be rather sleepy, but with the mentorship and the team, probably a really cool experience that you can stay at for a while.

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May 5, 2017

Nothing wrong with working for a family office - can be a seriously awesome gig for reasons layed out by Gray Fox. This is more whether you want to do PE or remain involved in publics, which only you can answer. Other issue is where comp will shake out in the mid/long term, which once again only you can estimate.

There is nothing inherently worse about a family office than, say, a HF that has a B and does both publics and privates, In fact, I would say a family office is almost always preferable to a fund of the same size (more stable capital, can theoretically pay more since founder is getting 100% of upside rather than 20)

May 5, 2017

People are totally missing the point IMO. It doesn't depend upon your source of capital (LPs vs. internal at a family office) but more so what actually investing you'll be doing.

May 5, 2017

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May 5, 2017
<span itemprop=name>Jim_Lahey</span>:

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Gray Fox has a great point with the possibility of mentorship, not saying that it wouldn't be possible at PE but a great chance to pick the brain of a successful investor, as well as learning how to work on smaller more closely-knit teams.

May 5, 2017

Family office all day

I'm at a large state plan so may be biased

May 5, 2017

What did you end up deciding @starmine17?

May 5, 2017

On the surface I'd take the family office gig as well. It provides a lot more flexibility and over time may allow you to pursue a few different avenues, including public, PE, VC, infrastructure, real estate. The biggest question is do you like the "guy" and will he potentially be a good mentor? If he's an ass, I'd take the PE job.

May 5, 2017

I'd personally go for 1).

I'd be concerned about the deal flow of the family office. Also, upside may be limited at the family office (in terms of comp).

    • 2
May 5, 2017

Agree with this. MM PE is the place to be in right now, if you're looking for dealflow experience. That can usually translate to something much bigger later on (like a higher position at a family office). Although the exit timeline might be a concern, especially if the fund is pretty old., Also, the fact that the family office seems to have a longer timeline means that dealflow may slow down, especially if he's involved more closely - it means that the fund might take on a greater operational perspective.

GoldenCinderblock: "I keep spending all my money on exotic fish so my armor sucks. Is it possible to romance multiple females? I got with the blue chick so far but I am also interested in the electronic chick and the face mask chick."

Oct 31, 2017

I agree re: using PE to get to a high position in the FO market - lots of guys have successfully done this

May 5, 2017

I would expect upside to be higher at a family office in general. The simple logic is that at a $1B HF if you return 10% and collect 15 there is $15M to pay everyone, including the founder. At a 1B family office if you return 10% the comp pool is technically $100M, and founder could afford to pay $15 to everyone else. Not sure this is how it actually works out in real life, but the few examples I've seen suggest family offices are a bit generous relative to their size (e.g. 200M offices paying analysts like $1B funds).

I'm sure it depends (like everything in this industry) entirely on individual circumstances however

May 5, 2017

Its a different mindset in terms of the LP base. At a traditional PE fund, you have multiple LPs who are paying you management fees and generating carry dollars - you do well, you get paid and have leverage over all your LPs. If an LP doesn't like your high fees and carry? That's fine, they can leave and another LP will gladly replace them.

For the family office you have one single LP, you have no leverage. You're dealing with a family who in all likelihood will balk if the comp starts to get too high. Traditional PE is pure capitalism. Also, you can't go out and raise more capital, whereas in traditional PE the sky is the limit.

Family office to me comes off as "sleepy" and a lifestyle choice. Just my opinion.

    • 2
May 6, 2017

If the AUM is the same, shouldn't a family office be better? Also, the track record and connections built at the family office are better. I would take #2. The mentorship at the family office will probably be better (especially because the owner was a senior PM at a top fund for a decade) and there is no need to worry about redemptions.

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May 6, 2017

Just curious, why did I get hit by monkey shit?

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May 7, 2017

Probably by someone who hates the idea of the family office gigs.

    • 2
Oct 31, 2017

If you're fine with coming in to work and doing the same thing the rest of your days there - do the family office. This may be a perfect fit for the lifestyle you are looking for (very slow if any upward mobility in title/responsibilities/pay). Otherwise look at #1 and #3.

    • 1
Oct 31, 2017

Thoughts from a guy at a family office:

  • There will be less deal flow. The incentives on deals are different at a family office than at a PE firm. The family office isn't getting management fees on capital deployed so they're much more selective on what they buy and tend to be cheaper in auctions too. Prepare to bid a lot and not ratchet up offers.
  • Conversely, because there are no requirements to exit due to fund lifetime constraints, you're much less likely to get divestment experience as well. If the founder doesn't like the valuations he's seeing, then prepare to sit tight.
  • I can't speak for the founder, but if he's very involved in deals, prepare for a "my way or the high way" approach to investing. Generally speaking, if someone is successful enough to have $1B of capital to invest, they know what they're doing and generally don't give a shit what some associate with <3 years of banking experience thinks. If you want to work in a meritocratic environment where the best idea wins and there's lots of discussion, avoid the FO.

So in summary, a family office will offer perks to a traditional PE firm (ie. lifestyle and competitive comp.) but you'll likely get less deal experience and the office dynamic will be heavily dependent on the founder's style. If you like the "corporate" feel of bigger firms, a family office is not for you. Furthermore, you will never run the show at a family office. The highest step you'll ever reach is being the founder's right hand man.

    • 4
Oct 31, 2017

Coming up on three years at a family office now. Founder made their money running a HF in Asia for 10+ years and was previously at BB banks in US/EU beforehand. AUM ~$300M USD
Just to echo the above:

  • Strong Personality: 100% agree with the above with regards to "my way or the high way". You have to earn the trust of the Founder for him to even give you an ear, let alone listen to investment advice, allocation, strategy. It's taken me 3 years to get to the position where I have relative discretion on investment amount(s) in deals. When it comes to investment team's sourcing vs. Founder's sourcing, he will always disregard ours becauase it isn't "his strategy" which can vary year to year.
  • Mentorship: He will coach everyone individually, and genuinely take an interest in your career, life and will help you in anyway he can. E.G. In the beginning he'd ask what sectors or transaction types I want to focus on, and make sure I got that exposure (pretty sure the VPs at the time hated hand holding me).
  • Helping out outside of work: The Family Office I work for are more than just coworkers. Some guys have been here 10+ years, and they want to ensure a healthy culture, which includes showing that they care. If I have problems outside of work or my family does, my coworkers here will leverage resources to solve the problem. E.G. my brother works in financial journalism covering some pretty archaic topics, I mentioned it to the Founder and he happily put him in touch with PMs at other buyside funds covering this topic. I have countless examples of this!
  • Deal Flow: This will depend on the founder, we are based in Asia, but invest all over. Think of Lead Investors in Series C for technology companies, seed rounds for medicinal marijuana, financing/M&A opportunities for our portfolio companies in Asia/USA. We also partner with institutions on some investments. I will say that the level of DD on some deals is far below what would be expected in traditional PE, but other sometimes easily on par.
  • Career Track & Exit Opps: I made VP a few months ago and will consider staying here for the foreseeable future. The deal flow is utterly nontraditional, and have felt at times I am far below where I would be (from either a DD or deal experience point of view) than if I were at a MM PE or BB. It helps a lot that we partner with institutions and some megafunds on deals where I can see what level I need to be at and improve. Exit Opps at our fund have been all over, from F500 FP&A/strategy/corp fin, megafunds, leading VC Funds, SWF etc. The reason for leaving is that most of these people wanted a traditional salary/bonus structure that the founder wasn't prepared to give at the time (we had no exits).
  • Comp: Completely up to the Founder, and he is almost always open to discussion. My bonuses have been on the low end of the scale since we've had few exits in the last year. However, we have one or two large exits coming up in the next two years where we individually have ownership in the portfolio company's equity. We're talking low seven figures per person. The structure, to summarize, is erratic, but on average I'd say at market or slightly above.

The biggest factor about my job is that it's just interesting. I'm 27 and get facetime with a lot of executives, see all sorts of deals (solar energy in SEA, medicinal mairjuana in the US, F&B in China) and types of deals, our entire investment team have random backgrounds and can tap their network for the expertise that we need.

Apologies for the long post.

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Jan 4, 2019

Am I reading this correctly brees? Most people are making low seven figures?

Best Response
Nov 1, 2017

Been in an Asian Single Family Office for the last 5 years. About US$20BB in AUM.

  • Make sure you get along with the founder (and his extensive family). In the end, it is a family affairs and expect your boss to be a tyrant. As a family office, the founder, most often the patriarchal father is the one who is running the show. But he also have to deal with his extensive family members as well as his own children.
  • Good thing is it is not performance driven. Usually it is based on whether you have the right support system within the family office. As they say in the Jewish banks, whether you have your rabbi to make your case. 75% of working time is revolving of which fraction within the family is taking power and you want to make sure you are supporting the projects that the winning side of the family wants.
  • Typical day: we follow the flavor of the year. Last few years we are into real estate development and made a few investments into mix-used development, commercial buildings and high end hotel chains. This year, we are looking more into consumer goods and financial services. Work ranges from coming up with a business plan, securing JV partner, setting up a new business, working on daily operations, hiring management team, and optimizing operations and cross-selling within the group.
  • Exit Options: Some ends up becoming CEO of the portfolio companies that they started while they were at the group level. Some moves into regional PE funds covering the same companies on both deal origination and portfolio operations. Some of the GM/ CEO of the portfolio companies move to competitor's companies. But direct investment role transfers between family offices are very rare in my market.
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Jan 15, 2019