The other day, I was invited to visit a multi-family office that only serve super-wealthy families that have $10mm and above.

I was curious what set them apart from my firm, which mostly serves folks in the $1mm to $5mm wealth range.

I came away with one word: exclusivity.

The name

What they do is no different from wealth management, but they call themselves “multi-family office.” Just in case you don’t know what family offices are, they are offices billionaire families set up to manage their own complex financial affairs. A family office serves only one family. By adding “multi-” to “family office,” a wealth management firm can make their millionaire clients feel like they are billionaires.

The floor and the desk

The floor is marble, and all the furniture is made of oak. The decor of the conference room shouts “luxurious.”

The advisor

The head advisor came in and introduced himself. Apparently he served in the Ford administration, then the Reagan administration, and the first Bush administration. Imagine you have him as your advisor. That surely is some bragging rights in cocktail parties.

The investment

Then we moved on to talk about investments. They showed me their sample investment – half of the asset allocation is in various hedge funds: global macro, event driven, long/short, managed futures, etc. These are investments not available to us mere mortals.

But these are also investments that are not regulated, extremely opaque, and in many cases, the managers make off with most of the gains if there are any.

Simon Lack, in the book “The Hedge Funds Mirage”, shows us the statistics he has meticulously collected: Between 1998 to 2010, hedge fund (and fund of hedge funds) managers make a total of $440 billion, investors in those funds? 9 billion, a mere 2% of all gains. Hedge fund statistics are self-reported, those hedge funds that have failed and lost all of investors’ money will likely not included in the statistics. So the real picture might be a lot worse. No wonder David Swensen, head of Yale  Endowment, called hedge funds, the cancer of the financial industry.

After the visit, I now know how I can up my game in the business:

• I will change my firm name to “MZ Family Office.”
• I will replace my IKEA furniture with oak wood.
• I will hire my college roommate who is in the federal government and rebrand him as working for three presidents: Clinton, Bush and Obama.

But I still can’t, in good conscience, put my clients’ money in hedge funds. It would be like giving them cancer.

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