There is no single portfolio model for every family office. The right approach depends on how your family created its wealth, what it knows, and what it wants to accomplish.
Five portfolio models
1. Endowment portfolio
Some families, particularly those in later generations with substantial assets, use a portfolio structure similar to an endowment fund. The emphasis is on broad diversification and retaining family assets over time. The goal is a secure portfolio that can help preserve wealth.
2. Real estate portfolio
For families that built their wealth in real estate, investing in the asset class they know can be a logical choice. Some believe their local experience and connections help them understand market cycles and find opportunities.
Real estate can make up a large share of a family's long-term assets. Apartment buildings and hotels are common investments among ultra-wealthy families, with office space also a frequent choice.
3. Private equity portfolio
Many families created wealth by building a business and taking it public. They may bring that business-building mindset to their family office, investing in private companies as a private equity fund might, but for their own family.
This approach often concentrates on one to three industries. Families may use direct investment strategies such as roll-ups, platforms, or niche monopolies to build wealth. The important question is whether the family has the knowledge and capability to pursue its chosen industries and strategies.
4. Direct investment portfolio
Some families invest directly rather than broadly in public markets or through investment funds. Their holdings may combine real estate and private businesses, giving them control over those assets while spreading investments across different types of property and operating companies.
5. Hybrid portfolio
A family can combine elements of these models. For example, it might allocate across a diversified endowment strategy, real estate, and operating businesses. The mix depends on the family's goals, mission, objectives, values, and resources.
These models are starting points. Families customize them, and families with similar asset sizes, generations, risk preferences, or sources of wealth may have more in common than they first appear.
Choose where to focus
When you formalize a family office, it can be hard to decide where to spend time and energy. One useful way to compare opportunities is to consider three things: what fits your background or location and gives you an advantage, where your time and money may produce the greatest financial return, and what you are passionate about.
You can also consider where future demand may be high and competition is currently limited. These factors can help distinguish between opportunities that look similar on the surface.
Conviction matters too. Deals may be easier to close when you have strong relationships with the team or organization, understand the industry, and are well informed about the company or asset. If you have little connection or knowledge in these areas, you may be spending time on an investment you cannot assess with confidence.
Bring the family's compass, values, mission, and objectives into the discussion. Understanding your wealth creation story, strengths, and capabilities gives you a clearer basis for deciding where to invest your time and energy. The goal is to build an approach that fits your family, rather than simply following the herd.
The portfolio spectrum runs from real estate and private operating businesses to public markets and diversified fund strategies. Your family's model may sit at one point on that spectrum or combine several approaches.
Action checklist
- Identify how your family created its wealth and what experience it can apply.
- Compare the five models: endowment, real estate, private equity, direct investment, and hybrid.
- Clarify your family's goals, mission, objectives, values, and available resources.
- List industries or assets where your background, location, or knowledge gives you an advantage.
- Consider potential financial return, personal interest, and future demand with limited competition.
- Assess your relationships with the team, your understanding of the industry, and how informed you are about the asset.
- Focus on opportunities where the family can invest with conviction.
From the book
"They look for maximum diversification, and their goal is to never lose assets under management. "
"This results in an approach that typically focuses on just one to three industries, where the family may apply classic roll-up, platform, niche monopoly, leverage resource, horse trading, choke point, and chess board strategies to use direct investments in private businesses to build wealth. "
Educational only. Nothing on this site is investment, tax, legal, accounting or other professional advice, or a recommendation on any security, manager, structure or allocation. Speak with qualified professionals before acting.