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Single Family Offices:Private Wealth Managementin the Family ContextRaphael Amit1The Wharton School, University of PennsylvaniaHeinrich Liechtenstein1IESE Business School, University of Navarra SpainM. Julia PratsIESE Business School, University of Navarra SpainTodd Millay & Laird P. PendletonCCC Alliance, LLCCorresponding authors. Please address all inquires to Raphael Amit (Americas & ROW) at 1 215 898 7731 or by email toamit@wharton.upenn.edu and to Heinrich Lichtenstein (Europe) at 34 93 253 4200 or by email to hl@iese.edu1

Single Family Offices: Private Wealth Management in the Family ContextAcknowledgementsWe would like to give special thanks to Citigroup Global Wealth Management and BNY MellonWealth Management for their help and support of this report and our ongoing research into familybusiness and family wealth. We also acknowledge that a portion of the funding for this project camefrom Penn Lauder CIBER Grant #P220A60017, a program funded by the U.S. Department of Educationto establish Centers for International Business Education and Research (CIBER) at leading universitiesacross the United States.We would like to thank the team at IESE’s Center for Family-Owned Business andEntrepreneurship (CEFIE), particularly Netta Etzion, and the Wharton Global Family Alliance (WGFA)team, particularly Sagit Stern and Greg Pitter, for their support during the project. Results presented inthis report are based on an ongoing research project on Wealth and Family carried out under the auspices of the Wharton Global Family Alliance (WGFA). We appreciate the involvement of the other partners in the WGFA, SDA Bocconi and Singapore Management University. We would like to thank our collaborators from the following European organizations: Institute for Family Business—IFB (UK),Association Française du Family Office—AFFO (France), Campden (International, with HQ in the UK),Family Office Circle run by Aeris Capital (Germany), Instituto de la Empresa Familiar —IEF (Spain), LeClub B (Switzerland), WHU—Otto Beisheim School of Management (Germany).Page 2 of 51

Single Family Offices: Private Wealth Management in the Family ContextTable of contentsIntroduction .4Section I: Family background .6Section II: SFO background, functions and service organization .9Section III: SFO team of professionals .16Section IV: SFO governance mechanism .21Section V: SFO asset allocation .26Section VI: Recommendations .30Appendices1. The evolution of the family office .322. Prior SFO research .333. Methodology .354. The complete survey .375. SFO functions—priorities .496. SFO functions—service organization .50References .51Page 3 of 51

Single Family Offices: Private Wealth Management in the Family ContextIntroductionSingle family offices (SFO) are professional organizations dedicated to managing the personal fortunesand lives of very wealthy families. Tracing their lineage back to the Roman major domus (head of thehouse) and the Medieval major-domo (chief steward), the modern SFO began to take shape in themid-19th century, with the development of private banks and trust companies formed to help theIndustrial Revolution’s entrepreneurs manage their wealth. Their charge was—and still is—to protecttheir particular family’s investments and assets for both current and subsequent generations. Since thebeginning, affluent families have been attracted to SFOs, rather than to commercial banks, investmentcompanies or other wealth optimization services, because of their promise of exclusivity, privacy andcustomization.These characteristics may make SFOs increasingly attractive to the super rich, but they alsomake it particularly difficult for researchers to understand their operations, their abilities, and theirachievements. The very confidentiality they afford impedes assessment of their competence. Moreover,since the SFO, by definition, focuses on the private affairs of one family, there is little comparative information available on the range and key differentiators among SFOs operating today. (See Appendix 1and 2 for both a summary of the evolution of SFOs and a review of the prior research on the topic). Itshould be noted that the SFO is separate and distinct from the multi family office or MFO, the latterbeing a for profit business that serves multiple unrelated family clients.This report begins to fill this knowledge gap by presenting the results of an international pilotstudy of SFOs responsible for managing at least US 100 million in investable assets in the Americas2,Europe3, and Rest of the World (RoW)4. The research has been conducted during 2006–2007 and isintended to survey the landscape of single family offices. This report is based on over 40 in person interviews and on 138 completed surveys. The sample size on which this report is based is, to our knowledge, the largest and most diverse in the SFO space, but it is not enough to make detailed comparisons among subsets of SFOs. The information we collected is not prescriptive; the survey is intendedto illuminate family office structure and practices—particularly investment strategies, not to evaluatehow well a given type of family office performs relative to another.Findings from the study shed light on several important aspects of single family offices and thefamilies behind them:1) The majority of the families participating in our study are entrepreneurial. In most cases,families with SFOs are majority shareholders in their family’s business operations and are intimatelyinvolved in the family business.2) Approximately half of the family businesses in our survey report more than 1 billion5 in revenue. Among survey respondents, total family wealth varies by region. Of those based in Europe, 53%of the families declared their wealth as exceeding 1 billion, compared to 26% of those from theAmericas and 33% from the Rest of the World (RoW).3) Most families view their SFO as mainly a private investment office. “Soft” responsibilities,like coordinating education, providing concierge services, and organizing philanthropy, are consideredsignificantly less important SFO tasks.2Americas includes Bahamas, Brazil, Canada, El Salvador, and the United States.Europe includes Belgium, Finland, France, Germany, Ireland, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, and UnitedKingdom.34Rest of the World (RoW) includes Australia, Hong Kong, Japan, Malaysia, Philippines, and Singapore.5 sign throughout the report refers to US dollars.Page 4 of 51

Single Family Offices: Private Wealth Management in the Family Context4) Families are deeply involved in the operations of their SFO, and in nearly half of the officesstudied, a family member acts as the head of the SFO. These SFO heads usually have a managerialbackground, either from working in the family’s business or in the industry. Moreover, the extent of anSFO head’s involvement in investment activities depends on how wealthy the family is and on howmany generations of the family are involved. In the wealthiest SFOs, as well as in those serving multiple generations, the heads personally devote less time to investment activities than do those workingin SFOs with lower levels of wealth and fewer generations.5) To retain key SFO personnel, the emphasis is on creating attractive working environmentsand assuring job stability.6) Regarding governance, first generation6 SFOs tend to have fewer committees when compared to later generation7 SFOs. The survey found no correlation, however, between total wealth leveland the number of SFO committees. In addition, the study found no impact of wealth level on reporting practices. Interestingly, however, geography does matter: European SFOs typically have more committees and they provide more frequent and detailed information to family stakeholders than theircounterparts in the Americas. This study also revealed that a higher percentage of billionaire SFOs haveboth a board of directors and an audit committee compared to millionaire SFOs.7) Finally, geography, size and age all affect how SFOs decide to allocate their assets. The studyfound that families in the Americas invest more in equities, while European families invest more in principal investments and real estate. Principal investments and private equity allocations are more prevalent for SFOs serving first generation families.These observations are the result of a joint project by four leading business schools—theWharton School, IESE Business School, SDA Bocconi, and Singapore Management University—workingtogether under the auspices of the Wharton Global Family Alliance (WGFA). Our objective is to fill thegap of sparse literature and information regarding the SFO worldwide. This pilot project forms the basisof one of the first comprehensive global academic studies of Single Family Offices. (See Appendix 3 fora detailed description of the methodology and Appendix 4 for a copy of the survey instrument and thedetailed results.)This report is organized into six main sections: (I) Family background, (II) SFO background,functions and service organization, (III) SFO team professionals, (IV) SFO governance mechanism, (V)SFO asset allocations, and (VI) Recommendations. Throughout this report, we also provide five casestudies that illustrate the various ways in which SFOs are organized and governed.6We defined first generation SFOs when the first generation is present.7We defined later generation SFOs when the first generation is no longer present.Page 5 of 51