Family Offices From Scratch

today we're talking family offices how to approach one how to pitch one how to start family office comparing different types of family offices all in today's video my name is Brier painon currently run two eight figure investment funds we have over thousand fund managers and we're always talking about approaching family offices so let's dive in so what is family office family office in the most simple form is just bucket of money wealthy family to say for example this family made $75 million and they have this pool of money and they structure things to put together in more you call it structured way to deploy and be prudent with that Capital that's really all it is some people use trusts some people use limited Partnerships there's bunch of structures they can use we'll dive into some of those in second but that's all it really is so to manage and some of you all know this to run and actually manage $75 million is full-time job to actually deploy to put into charity work to make sure your kids or Foundation or other things that's actually full-time job and so what lot of family offices do is they start hiring ing people to help them and so what will happen let's say this family has 75 million they'll say well we probably need an accountant so they've hired an accountant and they hey we need probably an investment person they hire like CIO we need maybe like CFO and don't know maybe like charity person that'd be like maybe basic setup so we have hey we have four people and we're going to pay them salaries you know we're going to pay them or maybe they're part-time full-time whatever we're going to pay them some money to really think about and work on our family office to grow the money to make we're deploying the right way giving it away away in the right manner to not you know not some scam charity or really good Charities that takes job and because don't want to deal with that just sold my company for 75 million I'm going to go spend some time in the Bahamas or something right now you could argue everybody listening to this channel you're kind of your own family office quotee unquote you already manage your own finances you manage your own budgets and stuff but the moment you really become family office is when you have other people doing that for you you have pool of resources and also you are paying them full-time on your staff now there are two different types of family office there is what's called multi family office and there's single family office multifamily office works with other families so maybe you know hey we're 75 million that's in the family office world that's okay we're going to bring in three other families or four other families that also have money and we're going to share these resources we're going to have because you know it's the same work we're going to have the same CIO the same CFO the same charity person same accountant we're going to pay them all salary of 150,000 year you know to do these items for us and we're going to share these resources that would be multi family office currently right now Bridger I'm actually in the process I've just joined multif family office my own wealth and we I've I've pulled Resources with other family offices that's where I'm at now once you get big enough and lot of times the number is you know would say roughly maybe 200 million you can become single family office and that's where you say you know what I'm sick of sharing resources want people like dedicated to me and you say you know what don't want to share with anybody all of these people the accountant the CIO the CFO the charity person and other people they're just going to work for my family directly Jeff basos is single family office you know he manages it's 150 what billion dollars he's got his own CIO own CFO right they don't they're not sharing resource anybody else so if you're running fund or pitching it's good to know if you're are you talking to multif family office or are you talking to single family office so now the next big discussion with family offices we get new page here is how do you actually pass down your wealth now many family offices are concerned about passing down their money to Next Generation that's very logical thing to do and that's what they how they Define it is they have G1 generation one passing money to generation two and then Generation 3 and Beyond now there's funny thing if there lot of statistics on this most the time by generation three the money is gone almost always in very few cases and what they say is you know generation one makes the money they makes the money generation two maintains the money and then by generation three lot of times they lose the money so and lot of times how this works what they do is they set up trust if you've heard of trust fund kids is what they're doing they this is there's dozens of ways to use trust but this is how it looks so you have trust over here lot of times the grantor the G1 person puts money into the trust once they die or something trustee takes over and then that money gets given to beneficiaries now there's lot of different ways to do trust that's simple version the beneficiaries are G2 G3 and good family also try to raise these kids or whatever but lot of times it just makes for bad situation this is why you see like the Vanderbilt family or other big families that used to be really wealthy they've lost all their money today however there is one family the Rockefellers who have kept their money for generations and continue to have lots of money today and they did something very very different they created what they called family bank now want to put Bank in air quotes it wasn't actually like bank but this is something that you could maybe even do today what they did is they said this we're going to have all the money go into quote unquote Bank okay here it is and we have We've appointed five people who are going to act as you could call them the loan committee okay the loan officers right and what we're going to do if anybody in this group maybe our G3 or G4 or family or friends whoever wants to have money from us well guess what happens you've got to come over here and you apply for loan and the loan officers will either either approve or deny your loan now we're going to be nice we're all family we'll probably approve your loan but it works like loan we're not just going to give you money so for example if granddaughter wants to come and says you know hey would love to go buy want to get into real estate want to go buy fourplex great I'm going to go pitch the bank so she comes and pitches the family hey want to do this forx great loan officers approve it yes we'll give you an approval you're going to get money at 1% interest rate so really small low interest almost free and great go buy your forp Plex but you've got to pay us back there's an obligation you hey you've got you know we're going to give you $800,000 to go buy this fourplex come pay us back at 1% interest rate you got five years or seven years or 10 years we can extend the loan and if you don't pay us back you become bad creditor and you're going to probably next time you want loan we're going to probably block your loan so there is an incentive to be prudent with the money this encourages entrepreneurship if you know grandson down here in the G4 wants to go start business great yeah we'll approve you we'll give you really cheap loan or an investment however if you do bad with the investment we're probably not going to lend to you again so make sure you do good job it's like okay like you know they they change instead of just giving someone money it's it's there's obligations there's terms you got to pay us back and maybe the way I've set up my family office for example the first loan is Max of $100,000 you can only get 100 Grand and after you do one loan with us then then we'll do more we'll do up to 500,000 we'll do up to million we'll do up to 5 like we'll extend your line of credit but you got to prove that you're good creditor even if if you want to go to college great you want to go to college come pitch the loan officers on why we should invest in your college education and how that college education will pay us back and you could repay that loan it's not just free money okay that's how we structur it now this is how the Rockefellers did it they've had money now for generations and this family Bank still goes on to dat cuz guess what happens if you know in my example let's say I'm I'm on the loan committee me and my wife we have few other people on our loan committee we die it doesn't go into trust with trustee it just stays in the business it's bank and the loan officers they replace me they have funeral everyone's very sad but then they guess what they just appoint new loan officer maybe they grab somebody from G3 that's been doing well hey you know what join our loan committee and then they continue to vote on loans and manage the money and it's just business that continues on okay lot of times if I'm going little deeper how this is structured they do this in fund structure so they'll set up this would be the GP the general partner over here if you seen my other videos on funds you'll know lot about this this would be your limited partnership this would be the fund so it wouldn't be bank because banks have certain Charters and rules you would call it bank but it would be more your limited partnership the money would be in the limited partnership you'd have general partner voting on where do we deploy this Capital so now let's talk about approaching and raising money for family office offes now there's an old adage that says Hey if you know family office guess what you know one family office family offices run lot of times very separate from one another some people think like I'm going to crack into this family office Network and they meet one family office and it's like they don't know anybody else and that's that's the old adage because they sometimes operate very individualistic some work together in multif family offices but they work individually now something to notice When approaching family offices hey let's talk about larger family office most of the time they have already decided on certain mandate so I'm going to give you great example this is my fund have crypto hedge fund right now we manage eight figures in crypto we've done extremely well over the last few years we've approached number of family offices and what's funny we go sit down with them and I'm going to draw little pie chart here they've got their little pie chart they have already decided beforehand what their allocations are for their family office so they've already said hey you know 38% is going to be real estate and we're going to do you know 25% in equities and we're going to hold 10% in cash and we're going to do this much in bonds right and then we have this much in fixed income right and they have they already have decided the Mandate and we've talked to family offices and we we'll go meet with their CIO or somebody and they go well sorry crypto is just not even in our mandate yet and I'm like what do you mean and they're like well we have our mandate and we've already decided on what we're investing into crypto is not even in that it's like shoot he's like we're meeting in you know in April like next year and we're going to decide if we should add crypto to the Mandate right so understanding number one is there mandate and do you even fit into the Mandate now have we tried to Brute Force crypto into their mandate yes has it ever worked no not yet at least now if you do fit in that mandate what just so you're aware they've already decided they like real estate they just got to decide if they like you to manage portion of their real estate portfolio that's already in their mandate okay so something to be aware of when you're approaching or doing research on family offices another thing to consider there are multiple decision makers this was institutional investors as well we've had lot of you know when we go pitch you just think hey I'm pitching one person and they're going to decide to invest or not that's great we've actually had this happen few times with us with ugly unicorn we'll go pitch like the son of the family office he freaking loves us he's like this is the coolest thing ever he loves our fund and we're like great man we're getting yeah great they want to invest in our fund this is awesome well he goes let me just talk to my team real quick I'm like okay sounds good well we'll talk to anybody and then we go meet with the CIO and then we have to meet with the lawyer and then we got to meet with the CFO right and almost always and we'll get them sometimes together in one room there's six people in room and they're all decision makers and two of them love us and love crypto four of them hate have never bought crypto hate think it's scam and we're like gosh so now we got to convince you're now selling multiple people you have different decision makers and it just makes it much more complicated sale which is totally fine but just understand that going into it you are selling with multiple decision makers multiple different levels of experience and different backgrounds of lawyer CFO CIO the son of the family in our examples we typically the family members usually love us the CIO has never bought crypto in their life it's not in their mandate and they don't want to touch it currently and so it's this it's this back and forth this tug and pole of the younger son versus the CIO and they're now fighting internally and we're in this office like okay they're fighting about crypto and it can just be interesting it's good to know that that's the dynamic of how this works same thing's true with the multif family offs and other familys that you're pitching so to to come back number one if you can do research UPF front see if they already have mandate for you and you fit into their portfolio number two understand there's multiple decision makers last thing I'll say number three every family office is different but I've seen number of family offices they stack everything together for year like we we called one up they were like hey this is cool it's like January this is awesome we're talking to them they go great we just we only make deployments in in August and you're like what yeah yeah so what we do we take all of your pitch decks and we we decide on all of them in August so just be aware they have different timelines different things that they're doing in their family office