The cost of running a family office has surged in recent years, with the average annual expenditure now exceeding $3 million. This spike is attributed to the intense competition for top talent in the industry, which has driven up staffing expenses significantly. According to the J.P. Morgan Private Bank Global Family Office Report, wealthy families are shelling out anywhere from $1 million to over $10 million a year to keep their family offices running smoothly.
The expenses associated with operating a family office vary depending on the assets under management. Smaller family offices managing less than $500 million typically spend around $1.5 million annually, while those with assets exceeding $1 billion shell out an average of $6.1 million per year. The primary driver behind these escalating costs is the need to attract and retain top talent within the competitive landscape of family offices.
Competition and Talent War
There is a fierce battle for talent within the family office sector, with these entities now competing directly with private equity, hedge funds, and venture capital firms for skilled professionals. As the number of family offices continues to grow and expand, the demand for experienced staff has intensified, leading to soaring compensation packages. Recruiters note that family offices are poaching talent from one another, further driving up costs in an already-expensive market.
Focus on Alternatives and Investments
Family offices are increasingly shifting their focus towards alternative investments such as private equity, venture capital, and real estate. This strategic move has put them in direct competition with established investment firms, necessitating the recruitment of top-tier professionals to manage these complex portfolios. The influx of assets into these alternative investment classes has resulted in a surge in staffing costs, as qualified personnel are in high demand.
The competitive landscape of family offices has led to a substantial increase in compensation and incentives for employees. Chief Investment Officers (CIOs) at family offices are now earning an average of $1 million for overseeing assets under $1 billion, with those managing over $10 billion taking home nearly $2 million. Moreover, long-term incentive plans such as deferred compensation are being offered to sweeten compensation packages and retain top talent within the organization.
Recruitment Strategies and Challenges
Family offices are facing challenges in recruiting senior-level professionals, particularly when competing with large private equity firms. To address this issue, family offices are adopting innovative recruitment strategies such as hiring mid-level managers from PE firms and offering them higher pay, better access to deals, and increased autonomy. Some family offices are even providing profit-sharing opportunities, akin to PE firms, to attract and retain top talent in a fiercely competitive market.
The escalating costs of operating a family office underscore the intensifying competition for talent within the industry. As family offices continue to expand and diversify their investment portfolios, the need for skilled professionals has never been higher. To stay ahead in this competitive landscape, family offices must be willing to invest in recruitment strategies, compensation packages, and incentives that attract and retain top talent in the field.