4 most common situations when to turn to a multi-family office

Being a partner in a multi-family office is not for everyone. For various reasons, which we explain below, a multi-family office generally makes sense only for the wealthiest individuals and families.

The concept has existed for centuries, but began to grow significantly only in the second half of the 20th century. In our part of the world, it has emerged largely within the past decade or two. The main period of growth may therefore still lie ahead, driven by the ongoing generational transition and the increasing number of very wealthy individuals and families in the Czech Republic.

…a multi-family office is not a financial adviser or a private banker.

To briefly recap our first article, “What is a multi-family office” from this series:
A family office is an institution that provides comprehensive oversight and management of a family’s or individual’s wealth. Because of its broad scope, it differs fundamentally from more familiar, but narrower, forms of wealth management such as private banking or financial advisory services.

A multi-family office provides this ecosystem not for a single family, but for several families or partners who share its resources and expertise.

A typical prospective partner for a multi-family office has no one to hand wealth management over to, or neither they nor their banker can navigate the investments anymore

The typical audience consists of individuals and families with existing or prospective wealth of at least several hundred million Czech crowns.

These are people who want to reduce the burden associated with managing their investment and non-investment assets and often need to address their structuring, legal protection, succession, and inheritance as well.

Below are four typical situations in which we encounter prospective partners:

1. The current manager of the family wealth wants or needs to step back. Often the family patriarch or matriarch no longer has the interest, energy, or health to manage the family portfolio. The next generation may not yet be sufficiently prepared to take over, or may simply lack the time or expertise required to manage the family wealth full-time.
2. The family wealth has become fragmented and difficult to oversee. Assets are invested across many institutions and instruments, but without centralized documentation, established succession processes, or properly addressed inheritance issues. The structure may also be tax-inefficient. The head of the family does not want to leave behind disorder or create a potential source of conflict when the wealth is eventually divided. There is therefore an urgent need to consolidate the overview and management of assets within one central system.
3. The family has outgrown its existing wealth management solution. As wealth begins to reach hundreds of millions of Czech crowns, the owner may realize that the existing solution, often private banking, is no longer sufficient. What is usually missing is comprehensive oversight and the ability to allocate capital to alternative asset classes such as private equity, venture capital, Web3 and crypto, art, and others. The question of how to structure the portfolio for the long term so that its real value is not eroded by inflation becomes increasingly important.
4. A substantial amount of wealth is acquired suddenly. This may happen through the sale of a company, an inheritance, or another liquidity event. A traditional investment adviser or private banker may lack either the opportunity or, in some cases, the ability to construct a portfolio in which all essential investment categories are appropriately represented and diversified, with the usual long-term objective of at least outperforming inflation. At this level of wealth, a limited selection of funds and bonds can no longer be considered a comprehensive, modern portfolio.

Multi-family office ecosystem: a partnership of equals

Aligned management perspective and long-term partnership

The management of a multi-family office usually consists of founding partners who also manage their own family wealth within the same ecosystem.

Typically, these are not employees, but experienced investors and successful entrepreneurs who have spent many years managing significant investment assets of their own. As a result, they are better able to understand the wealth-related and broader objectives of their partners. They are in the same boat.

Allocations and decisions should therefore be made objectively rather than as one-off decisions without consequences. It is also common for management and performance fees to be reinvested alongside partner families into joint investments.

A long-term partnership is therefore not simply an empty phrase, but a practical necessity if everyone within the ecosystem is to prosper together.

Unburdening and comprehensive oversight

Being part of a multi-family office means that a family gains a long-term partner not only for strategic portfolio allocation across asset classes and geographies, but also for ensuring generational continuity and planning the legacy left to future generations.

Access to related specialists in legal, tax, accounting, and other areas should be a matter of course.

Almost all matters relating to the family’s finances and wealth can therefore be redirected to the multi-family office. Depending on their preferences, the current manager of the family wealth can be partially or almost entirely relieved of the associated administrative burden.

Lower costs, privileged access to transactions

Within a multi-family office, operating costs can be shared, as can due diligence and access to otherwise difficult-to-reach investment opportunities, including so-called club deals.

In many cases, this can reduce costs compared with alternative solutions, including operating a dedicated single-family office, where there is no opportunity to share operating expenses.

Perhaps an even greater benefit, however, is access to non-public and potentially attractive investment opportunities within the multi-family office ecosystem and its network of contacts.

Flexibility in portfolio construction

There are few inherent limitations when constructing an investment portfolio.

Unlike traditional banking institutions, alternative investments such as private equity, venture capital, different types of real estate, hedge funds, and other strategies are not off-limits. On the contrary, they can play an important role in a portfolio by contributing to stability and potentially generating excess returns.

The same applies to other asset classes such as gold and precious metals, art, collectibles and antiques, as well as crypto assets in recent years.

A multi-family office should take a proven yet innovative approach to portfolio construction rather than remain tied to the relatively rigid and limited range of instruments typically offered by traditional investment houses.

This flexibility can also make ESG considerations and sustainability achievable portfolio objectives rather than merely empty buzzwords.

Oversight and peer review

It is important to emphasize that a typical multi-family office is not an investment fund or trust fund. It therefore does not simply accept money from its partners for management. The partner remains the direct owner of the individual investments.

The added value of the organization lies in its advisory and overarching role in portfolio allocation and management.

Partners can also benefit from peer review and the perspectives of other members of the ecosystem. In addition, it is common for the institution’s activities to be overseen by an independent investment committee.

The partner in a multi-family office therefore retains the final say and full control over their wealth.

Digitalization and automation

Especially in the local market, a multi-family office is likely to be a relatively young institution, and as such, it should offer a modern approach and an innovative digital environment (for example, an online portal summarizing assets and data, a document cloud, electronic signatures, etc.). These are the elements that characterize so-called "wealthtech" institutions. It should also understand sustainability and ESG issues, regardless of how polarizing they may be today.

A preview of the modern "eFOP" online portal, proprietary software from Family Office Partners for comprehensive asset management: