11.14.2014
By Terry Flanagan

Multi-Family Offices’ AUM: $700 Billion

The multi-family office channel now controls more than $700 billion, according to research from global analytics firm Cerulli Associates.

Cerulli estimates that the multi-family office channel is comprised of more than 200 firms that control more than $700 billion, said Donnie Ethier, associate director at Cerulli.

“Traditionally, the growth has been influenced by the independent registered investment advisor (RIA) segment of the channel,” Ethier said in a release. “While this is still true, the highly-debated commercial multi-family office segment, which is financially backed by banks, posted the greatest asset growth in 2013.”

Henley Smith, director of director of investments in the private client/wealth management group at Oppenheimer & Co., told Markets Media that he is trying to educate multi-family offices on the wisdom of short-duration fixed income investments.

Persistently low interest rates and what to do with the mountains of cash those family offices are sitting on continues to be a concern.

“A lot of people are concerned about core fixed income and higher-yielding fixed income, just because of the fact that we do seem to be going into a transition of a rate change and a policy change,” said Smith. “That’s reflected in the fact that cash remains at elevated levels and people are just wrestling with not only when do you get back in the markets, but what’s the right response in terms of the portfolio.”

In a report, Cerulli analyzes the U.S. HNW (investable assets greater than $5 million) and UHNW (investable assets greater than $20 million) marketplaces. The report focuses on the three constituencies of investors, providers, and asset managers.

“Many executives agree that the phrase ‘multi-family office’ has lost its allure because so many wealth managers use it to explain their services geared to wealthy investors,” Ethier said. “This has generally watered down the term to a marketing scheme. Evaluating a multi-family office should be based on the practices’ high-touch services and DNA versus its assets under management.”

Cerulli believes that third-party management opportunities will only grow as additional RIAs move upmarket, qualifying for multi-family office status. More national and super regional banks and trust companies will likely follow suit and establish family-office practices of their own. Appeal will grow across the segments as the firm count and assets swell.

“Despite the debate of whether or not these offices are genuine family offices, the high-end wealth management units are paying off for many of their parent banks,” said Ethier.

Although multi-family offices undoubtedly focus on high-net-worth (HNW) and ultra-high-net-worth families (UHNW), many do have a mix of clients that do not meet Cerulli’s HNW criteria. These non-HNW assets are still a massive opportunity for third-party managers.

Featured image via Gajus/Dollar Photo Club

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