Four Ways Family Offices Back Emerging Fund Managers

Richard C. Wilson speaks from Zurich, Switzerland, explaining how family offices invest in emerging fund managers.

Richard C. Wilson explains four ways family offices invest in emerging fund managers, from portfolio allocation to fund structures and capital arrangements that can differ for the family office and the manager.

In this video: Richard C. Wilson (Host)

What they said

1. Core satellite allocation. Wilson says family offices may put 85% to 95% of a core portfolio in larger managers, ETFs and stocks, with 5 to 15% in emerging managers. He says they may see return potential, alongside more business and style drift risk. (at 0:29)
2. Fund of funds. Wilson says a family office can invest in a fund of funds that selects emerging managers. Some family offices run their own after building the skills and capabilities to select managers. (at 1:24)
3. Traditional seeding. Wilson describes family offices providing an emerging manager with, say, 20, 30 or $50 million in return for ownership in the management company or part of the structure. They may also ask for discounted fees, and he says negotiations can amount to a yes or no. (at 1:24)
4. Risk capital matching. Wilson gives an example where a manager puts $1 million into a separate account and a risk capital group matches it with $9 million. The manager retains $9 million in the original account, bringing the total to $19 million, which could help meet a $15 million threshold another investor has set. (at 2:22)
5. Wilson on risk capital terms. Wilson says every risk capital agreement differs and may not suit a volatile strategy. In his example, if the account falls 7% in one day, a contract clause could cut off trading, with the loss coming from the manager's $1 million while the provider takes back its $9 million without a loss. (at 2:50)

In their words

"emerging managers are fund managers investment fund managers with under $100 million in assets"

"every agreement is different so you have to read every single word and know whether the agreement is right for you"

Why it matters if you are building or preserving great wealth

The match in Wilson's example has a stated purpose beyond increasing the account total: another investor might add $500,000 or $1 million after the manager reaches the $15 million mark.