Investing on behalf of a family office is a highly coveted career within institutional investing. Family offices have a more concentrated constituency, often less pressure to achieve near-term returns and greater asset allocation flexibility than other institution types.
But that is a broad generalization. One chief investment officer referred to family offices as “probably the most heterogeneous asset group in the institutional investment world.” Another CIO had a similar sentiment: “If you've seen one family office, then you've seen one family office.”
There is, however, a tendency toward maximizing long-term, risk-adjusted returns through highly illiquid strategies in the private equity and real assets space. Increasingly, family offices are venturing into direct investments, co-investment and moonshot projects.
“With respect to risk profile, private clients vary widely in their approach,” said Andrew Eberhart, chief investment officer at a prominent single-family office. “Families that come from an entrepreneurial background are often willing to invest with other entrepreneurs, assume more concentration or invest in a specific industry or passion that may involve higher risk.”
Because every office is fundamentally different from the next, there is no orthodox path to landing a family office job.
There are, however, a few commonalities. Trusted Insight compiled a list of four key traits valued by family offices, sourced from 14 interviews with senior investors at single-family offices. Some of the interviewees declined to be quoted on the record, citing confidentiality.
#1: Put Family First
“I might not have their surname, but they have treated me like family from day one,” said Asher Noor, CIO and group CFO at AlTouq Group, a Saudi Arabian single-family office.
Family offices, as their name suggests, are exactly that: an investment office for a particular family. As opposed to other institution types, family members (the institution’s constituent) often play a critical role in the investment practices.
“The family’s investments are very important to them, so together we invest our time in analyzing the deal flows that come our way and deciding when to invest, where to invest and how much to invest,” Noor said. “Post-investment review and eventual exits are equally well debated in our Investment Committee meetings.”
For Tim Dolan, chief investment officer at GP Brinson Investments, working closely with the patriarch, Gary Brinson, has been a rewarded learning opportunity.
“Investing is an exciting business because it is so dynamic, but the fundamentals are still the fundamentals,” he said. “There is no alchemy or pixie dust. Gary appreciates and enjoys the dynamism of the business, and his resident knowledge of investment fundamentals never ceases to amaze me.”
Shawn Egan, general partner and chief investment officer at the Florida-based single-family office Antares Capital, maintains alignment of interest with the family by also having “skin in the game.”
“As their CIO, I feel the pain in good and bad times as well,” he said. “I think this is different from my CIO peers who represent other forms of capital, sometimes for the benefit of people they may never meet and who may not have their own money invested in the portfolio.”
A key to that close working relationship, Eberhart says, are strong interpersonal skills.
“I think the family members expect good performance, as they should,” he said. “So, the differentiator is how the family office principals interface with the family members. You need to maintain social awareness, strong communication skills and have an instinct for service. In other words, if a family member calls, it doesn't matter what you’re doing, you take the call.”
#2: Diversify Your Experience
“To succeed you have to approach investing from multiple perspectives, including psychology, finance, risk, statistics, etc.,” said Clark Cheng, chief investment officer at Merrimac, a family office that primarily invests in hedge funds.
Institutional investors, at family offices and across the industry, expound the virtues of a broad education, through both academics and varying professional experiences.
Alan Chang, partner at the single-family office Capricorn Investment Group, triple majored in electrical engineering, computer science and art history before earning an MBA from Harvard. That interdisciplinary knowledge has been crucial to his success.
“Art history gives that top-down approach, while electrical engineering and computer science allow for the logical thinking,” Chang said. “This allows for building systems and very technical due diligence. These skills are still being used today.”
That logic can also be applied to viewing the industry from various perspectives.
Before Biren Bhandari managed venture capital and private equity at CM Capital Advisors, he worked for a private equity shop and a private equity-backed startup. Those experiences, he said, allow him to ask piercing questions that expose the strengths and weaknesses of any given investment.
#3: Be Eager To Invest In Change
“[Family offices] have also increasingly become advocates for change – using their capital and influence to foster profitable innovation around some of the globe’s most pressing issues,” Eberhart said.
Many of the family offices of today go beyond their philanthropic predecessors by actively investing in new technologies and ideas with the potential to change the world. A European single-family office we spoke to seeks to invest in technologies that improve access to education and the internet. An American family office recently allocated capital toward clean energy-powered public transportation. Capricorn’s portfolio reads something like pre-millenium science fiction: nuclear fusion, miniature satellites, reuseable rockets.
“We have a little bit of a contrarian streak to us,” Chang said. “We also -- because of the vision of helping to find investments and fund ventures that help to create a world of peace, prosperity and sustainability -- like technology or sectors that others may be very bearish about.” Having that desire to help others may be in favor of someone trying to fill a family office job vacancy.
William Orum, Chang’s colleague and a partner at Capricorn, said that alignment with the financial and philanthropic goals of a respective family is paramount to success.
#4: Fortune Favors The Bold
“The single rule that has served me best through my career has been: When in doubt, do what feels most uncomfortable,” said Theodore Kokas, chief investment officer at EverWatch Financial*, a single-family office.
Like most institutions, family offices aim to generate the highest risk-adjusted returns over long periods of time. As competition for assets increases, investors “need to get out of their comfort zone,” Noor said.
“Some CIOs are asleep at the wheel and missing the neon swans all around them,” he said. “The future of investments may well be in a pure play with some of the unicorns of today, that many are loathe to add to their portfolio as being too exotic or risky.”
That equates to making calculated risks, being insatiably curious and being bold.
“You can't get a better-than-average result if you're doing the same thing as everyone else,” he said. “You’ll also have to turn over a lot of rocks to get one or two good ideas, but that discovery process exposes you to a steady stream of smart, accomplished people who will enrich your own thinking – and often leave you inspired. It is truly a fascinating profession to be in.”
Read our previous Trusted Answers series here.
* At the time of the interview, Kokas was chief investment officer of Roch Capital, a single-family office based in Glen Mills, Pennsylvania.