There’s no question that the number of family offices is on the rise. A recent study by Campden Research revealed that there are over 5,300 family offices worldwide. About 2,200 of the family offices are in North America. About 67% of family offices that exist today were established after 2000.
There aren’t hard and fast rules on what a modern-day family office looks like. A single family office typically has over $150 million in private wealth and is one family. In recent years, multi-family offices have increased. In multi-family offices, families — related or not — have shared interests, investment goals, infrastructure needs, or operational requirements. By coming together, they save resources. This way family offices can focus more energy on portfolio growth and increasing net profit margins.
Over the past decade, the way family offices invest has evolved. In the past, family offices stayed in their comfort zone, by acquiring operating businesses in their business sector.
What’s hot now are direct investments. Today, about 47% of family offices are directly investing and co-investing in operating businesses. Family offices are also increasingly investing in early-stage companies in need of venture capital.
Is this shift improving family offices’ investment performance? In 2017, family office portfolios returned 15.5 percent–– that’s a 7 percent increase from 2016. But growth brings many new logistical and resource challenges that can create a bottleneck.
As family offices celebrate increased returns, they’re confronted with more operational demands. In most cases, family offices are under-resourced when it comes to staff, time, and expertise. For example, the CEO is usually a family member and is swamped with operations — from financial planning to record keeping, to system improvement. This leaves little time to do due diligence. These factors hinder family offices from confidently discovering and making sound direct investments.
Family Offices Can Leverage an Interim CFO to Improve Operational Efficiency
When the multi-family office model is not an option or does not meet their demands, these family offices have another solution at their disposal: Interim executives. By bringing in an interim Chief Financial Officer or other project based executive, whether in IT systems improvements or portfolio team sales improvement, they can achieve more growth and improved operations quickly.
“As family offices professionalize to seek higher investment returns, they utilize interim CFOs to have an immediate impact on the performance of their portfolio investments,” says Tim Sullivan, a CFO with experience ranging from growing and selling a $200 million provider of marketing research services to helping found a family office. “There is a big focus on creating significant shareholder value by identifying and executing strategies to increase EBITDA and improve cash flow.”
Interim Chief Financial Officers – whether interim, or project, contract, or fractional executives – help lessen the workload for family offices by putting operational upgrades in place. From establishing or upgrading financial systems to preparing consolidated accounting reports, to managing tax returns, interim CFOs help improve operational efficiency both at the family office and potentially within portfolio companies.
An Interim CFO Performs Due Diligence So Family Offices Can Make Sound Investments
Interim Chief Financial Officers bring brain power to help family offices make strategic investment decisions. They conduct due diligence on direct investment opportunities that show the promise of high return on investment. Due diligence also informs family offices so they can make great financial partnerships.
When opportunities strike, innovative family offices are proactive about getting more expert hands-on-deck. They recognize that continued success, especially if that success is going to be accomplished by acquiring majority or full ownership in operating companies, requires a top-notch executive management team. Interim executives empower these family offices by establishing efficient operations and helping them make quality investment decisions.
“With the rise in active family office direct investments, the needs for great operational leadership are ever present,” says Robert Jordan, CEO of InterimExecs. “Interim, project or fractional executives are a great source of expert leadership, without having to wait months and months for the results of a long term search.”