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Hey, everyone! Today, I want to teach you how to start a family office from scratch!
Even if you aren’t super wealthy right now, you will be one day! This information will come in very handy!
It’s the accumulation of a wealthy family’s assets and money all in one place.
Let’s say a family has $50M dollars.
They don’t have the time to manage it, but they also don’t want to see it get eaten up by inflation.
So, they create an office for people to manage the $50M.
They hire a CIO, and maybe a few other individuals.
This family decides to pay 1 to 1.5% in management fees ($500K – 750K per year).
There are 2 types of family offices: single family office (SFO) and a multiple family office (MFO).
SFOs work by themselves as 1 entity and MFOs work with other family offices, meaning they combine their funds and hire 1 team to mitigate all expenses.
Although they were one of the wealthiest families on the planet, the Vanderbilt family were poor planners and by the 3rd generation, all the money was lost!
So, how do you set this up in a way that your grandkids don’t waste the money or turn into “trust fund babies?”
Let’s look at the John D. Rockefeller family…
Even though he died almost a century ago, his descendants still have a significant amount of wealth!
The Rockefellers figured out that it’s the easy access to capital that makes trust fund babies suffer.
So, they set up a “Family Limited Partnership (LP)/Fund.”
It runs just like a regular PE/VC fund!
The general partnership is made up of 4 – 6 individuals that decide on what investments to make.
Let’s say I’m a grandkid of this fund and I want a student loan…
The GP can decide whether to grant me the money or not.
If they say yes, then they loan me the money I need.
At this point, I’m not getting free money. I’m getting access to cheap capital.
Later, if I want money to invest into real estate, I will need to pitch the GP/investment committee!
If I decide to gamble away the capital, I’d be cut off from the family bank fund!
This system incentivizes the descendants to be entrepreneurial and rewards the successful ones!
If you’re asking yourself…
“Well Bridger, what if it’s MY family office and I die?”
No worries! The GP/investment committee still has control over the LP/fund!
So, that’s how you start a family office from scratch!
That’s it for today!
Thanks,
Want to get direct guidance for your fund? Schedule a time with my Fund Advisors!
DISCLAIMER: This content is for educational and informational purposes only. It is not to be taken as tax, financial, or legal advice. You should always consult a legal professional before taking action. Furthermore, this is not a recommendation to buy or sell any security. The content is solely just the opinion of the authors.
