Family offices for ultra-wealthy with $100 million or more explode in Dallas and the U.S. (2024)

The ultra-wealthy live a different life from the 99.99%, including how they bank.

For those with more than $100 million in net worth, family offices are an increasingly popular way to invest their money. These privately held companies help wealthy families manage their assets under the radar with the goal of transferring their fortune to generations to come.

Bill Gates has Cascade Investment in Washington. Jeff Bezos has Bezos Expeditions in Washington. Oprah Winfrey has OW Management in Los Angeles.

In Dallas, onetime presidential candidate H. Ross Perot, who died in 2019, created Perot Investments after selling Electronic Data Systems to General Motors for $2.6 billion in 1984. He later sold Perot Systems to Dell for $3.9 billion in 2009.

Family offices were pioneered by the families of J.P. Morgan and John D. Rockefeller in the 19th century but remained a cottage industry for decades until after the 2008 recession, when a new generation of family offices started to pop up, said Tayyab Mohamed of Agreus Group, a London-based recruitment company that works with family offices worldwide.

“There was an element of trust lost in 2008, and families wanted to have more control over their assets,” he said. “Before 2008, it was just meant for the Rockefellers of the world, but right at the start of 2010 we saw families with a couple hundred million starting family offices.”

A UBS Securities report looked at 121 of the world’s largest single-family offices and found that 31% had been established between 2000 and 2010, and 38% were created from 2010 to 2020.

The simplest answer for why family offices are increasing is that more wealth is being created. But estimating an exact number remains difficult.

“For each family office people know about, there are two they don’t know about because they keep a low profile,” said Colin Carter, managing director of Tiedemann Advisors’ Dallas office. Tiedemann is one of the largest wealth advisory firms for high-net-worth individuals, families, trusts, foundations and endowments with $25 billion under management.

Recent data shows there are between 3,500 and 5,000 family offices in the world with one or more employees, $100 million or more in investible assets and some type of outside investment activity, according to a report from FINTRX, a family office research platform. Of those, 66% are in North America and 42% manage more than $1 billion in assets.

Texas is the state with the third-highest number of family offices, behind New York and California. Among cities, Dallas ranks third behind New York and Chicago.

Advantages of family offices

Family offices are often created after someone sells their business and needs to protect their wealth, Carter said. It’s a “nationwide phenomenon,” he said.

And since more families have sold companies in the past decade, family offices have been forced to become more democratized and more sophisticated.

Family offices “can now conduct transactions on par with established investment companies and private equity firms,” a recent FINTRX report said.

Perot Investments hired Boaz Sidikaro about three years ago out of a hedge fund in New York to be its chief investment officer. Sidikaro said the Perot family office has an institutional setup, with more than 50 employees working in the trust.

“There’s a misconception that family offices can be unsophisticated or have a lower intensity level than on Wall Street, and that’s a complete myth,” Sidikaro said. “The intensity of family offices has elevated over time.”

A family office also gives a family a team dedicated only to them, meaning they don’t need to wait until a professional is free at a private bank. Banks also charge fees for assets under management. When your assets are large enough, family offices become more economical.

Because individuals who create family offices often used to run their own businesses, they’re used to having a team of people to help them with complex issues, said Colin Patrick, chief financial officer of Dan Patterson’s family office Patterson Thoma, started in the 1980s in Dallas. Patterson is a health care entrepreneur-turned-private equity investor.

“As other families see the convenience of family offices, they keep proliferating. The growth is obvious. You can physically see the industry growing,” Patrick said.

The discretion that family offices get as a private entity is also attractive, especially if they keep the family name out of the company’s name, said Agreus Group’s Mohamed. Families will step away from a deal if they think it will bring unwanted publicity or attention from tax authorities, he said. They want to stay out of the limelight, and nondisclosure agreements are a must, he said.

“It’s not just the reputational risk. There are security threats. In certain countries, they can be vulnerable to threats and kidnappings, especially younger generations, so they prefer discretion over everything,” he said.

Patrick said privacy and discretion are right next to loyalty for Patterson Thoma, whose offices are located at the esteemed Old Parkland campus.

“You may see in the news that an anonymous donor gave a large gift to a charity and you know who it is because you wrote the check. But you don’t divulge that information because you’re respectful of family privacy,” he said.

Private equity is key

Wealthy families’ portfolios tend to be diversified. UBS Securities looked at 121 family offices and found that they had 29% in equities, 17% in fixed income, 16% in private equity, 14% in real estate, 13% in cash and 5% in hedge funds.

But private equity is the most popular asset type in the U.S. FINTRX reports that 80.9% of family offices in North America are invested in private equity. There’s been a big shift from traditional long-term-only funds, said FINTRX vice president of research Dennis Caulfield.

“About 10 years ago, family offices [realized] that if they come out of the shadows a little more, they will have access to more opportunities,” he said.

But within private equity, direct investments have become increasingly popular for family offices. That means a family gives a certain amount of money for a specific project in a sector vs. putting their money in a blind pool for an unknown project within a sector.

“Families enjoy that aspect because it’s more like a partnership with folks vs. throwing money over the fence and hoping it comes back,” Patrick said.

Just over half of U.S. family offices are making direct investments, with the vast majority being from single-family offices that support one family vs. multifamily offices. Of the 3,500 to 5,000 family offices worldwide, about 35% are single-family and 65% are multifamily, FINTRX reports.

Once again, wealthy families are wanting more control over where their money goes.

The main reason direct investments are taking off is because family offices are more sophisticated now, the FINTRX report said.

“Over the past decade, family offices have accumulated the assets and talent required to effectively allocate capital directly in the private space,” the report said.

Family offices have the benefit of being able to make a direct investment in a project that may take 20 to 25 years to pan out because it’s focused on generational wealth, he said. Private equity firms that put together pools of funds are typically looking to get a return on investment within three to five years.

Private equity did incredibly well during the pandemic, bringing in exceptional returns. In the past 12 months, a record-breaking 63% of family offices further diversified into private equity and 28% of the offices hired new talent to meet the demand, according to Agreus Group.

An ensuing talent war

Family offices differ greatly from each other. A common saying is that “if you’ve met one family office, you’ve met one family office.”

That’s partly because where a family deploys capital often depends on the industry that made them wealthy. Private investing, investment management and financial services are the most common backgrounds for those with family offices, followed by entrepreneurial ventures and inherited wealth.

However, no matter their priorities, they all want top talent.

“It’s highly competitive; there’s a war for talent,” said Eddie Brown, national managing director and head of Schwab Advisor Family Office.

Family offices are looking to hire people who are a good cultural fit, loyal and can wear many hats, experts and family offices said.

The FINTRX report shows that the average age for family office employees in the U.S. is 45, with 79.4% of them being men and the most common alma mater Harvard University.

Working at family offices can seem glamorized because employees are treated like part of the family, often getting perks like joining in on trips. Mohamed said that’s a misconception because family offices are “very disorganized by their nature,” forcing employees to be nimble and adaptive.

The work is not for everyone. In a corporate office, work is more structured and there are opportunities for vertical growth. In a family office, your work includes your main job as well as menial tasks like managing travel plans and household expenses. Growth is horizontal.

“Yes, you may get top seats for sports events and ride a yacht, but you may also be getting coffee,” Mohamed said. “But the reward is that if you prove yourself, you’re considered part of the family and will be on their annual family getaways.”

Sidikaro said Perot Investments prioritizes “cultural fit, high integrity and work ethic” and sometimes looks outside the financial industry.

Their hiring philosophy comes from Perot Sr., who used to say, “I look for people who love to win first and if I can’t find any of those, I look for people who hate to lose,” according to Sidikaro.

The top previous employers for family office professionals are UBS, Goldman Sachs, Merrill Lynch, Morgan Stanley and PricewaterhouseCoopers.

Patrick moved into the family office world after starting in accounting at Deloitte, where he said he had five bosses with different priorities. He was attracted to a model where everyone has the same objectives, he said.

Patterson Thoma, which has eight employees, including two family members, often hires from the professional services it uses, such as an accountant or attorney who helps the family over a period of time, Patrick said. They use recruiting firms for more entry-level positions, he said.

Turnover is “very low,” he said. The FINTRX report shows the average tenure is seven years for single-family offices and five years for multifamily offices.

“Those that don’t work out are ones who are coming from larger organizations where they had a defined job role,” Patrick said. “We’re all on the same team and if someone says, ‘Help with a cellphone plan today,’ I may be overqualified, but if it’s important to the family, it’s important to me.”