The push to institutionalize family offices, and the substantial capital they manage, may be reshaping them into something closer to traditional allocators, at the expense of the freedom that defines them.
Family offices now oversee an estimated $5.5 trillion in assets, and the industry has shifted from what were once loose, family-orientated setups to far more structured professional operations. As the capital managed by family offices has grown, so has the sophistication of the industry around them.
Banks and consultants regularly publish research highlighting the need for improvements in governance, asset allocation, and institutional-grade risk management. Many have built dedicated family office teams, each competing for mandates and encouraging families to adopt more institutional practices.
Compensation data also reflects a changing industry. Jody Thelander of J. Thelander Consulting, a recruiter that works with family offices, said she has seen rising compensation packages at firms over $500 million in assets.
“This dictates to me that there is a competition for talent. Those jobs are where there is a lot of flexibility to move around and it shows that there is a career lane in family offices and that they are competing,” she said.
The very fact that there is data for family office professionals at all illustrates the trend, she added. “It has become a real industry,” Thelander said, adding that family offices are now able to compete with venture capital and private equity.
But not everyone views this evolution as progress.
Gilles Erulin, former senior executive at Groupe Artémis, the family office of François Pinault, said: “I would say it is endangering the freedom of families and family offices. The market is evolving, and who's making that noise about evolution? It's the usual suspects, the big financial market advisors that worked out the private equity world was saturated, and that families are actually the new golden geese of the investment world.”
Erulin argues that lawyers, accountants, and advisors are pushing families to institutionalize, slowing portfolio decision-making and causing families to second-guess management choices based on both external and internal advice. Freedom is what differentiates family offices; relinquishing it risks turning them into just another institutional allocator — without the benefit of scale, he said.
Erulin warns that executives recruited from private equity and law firms may import those firms’ frameworks and constraints.
“Why does a family need totally independent third-party advisors to make decisions on their own investments? Nobody knows. But that's the way they're thinking.”
Others argue that professionalization is necessary.
Doruk Adnnan, head of asset management at Razeen Capital and a former CIO of a large family office in Riyadh, Saudi Arabia, said that a major limitation for family offices in the GCC region is structure and succession. When the next generation of families takes over, they often seek autonomy and ignore protocol and existing structures.
According to Adnnan, this is proving problematic in the GCC region, even with boards, investment committees, and proper strategies.
“In the end, it comes down to what the principals are feeling at the time,” he said. “But they need to be more open-minded, and when it comes to structure, the principals feel like they lack control and that somebody else is taking the benefits.”
Everyone benefits from good governance, he said. Principals acting on impulse and failing to work together are more likely to make poor allocation decisions. Instead, investment decisions should be made through proper mechanisms, with voting structures incorporating the views of the investment team and CIO.
