Multi-Family Offices Moving to Pooled Investment Vehicles: Cerulli

Trend is both opportunity and challenge for asset managers

Family offices’ increasing use of pooled investment vehicles presents an opportunity for asset managers, though one with challenges, according to new research by Cerulli Associates.

Cerulli found that most multi-family offices have developed their own pooled investment vehicles. Some can resemble funds of funds, while others may be feeder funds that allow clients to access funds with high minimum investments.

Single family offices are much less likely to have their own internally pooled products, Cerulli said, mainly because it is not economically feasible to do so. However, a few have combined with other wealthy families or external providers to create pooled vehicles or feeder funds.

Most pooled investment vehicles come under the Regulation D of the Securities Act of 1933, instituted in 1982. This allows family offices to not register their investment vehicles with the SEC when they sell to accredited investors. They must file a Form D, which contains only basic information, after selling their securities.

Cerulli said pooled investment vehicles are an opportunity for asset managers, but will also be competitors as their preference for creating in-house vehicles becomes more pronounced. “In the not-too-distant-future it may be difficult to differentiate and classify these family offices as asset managers or wealth providers since they will be both manufacturers and distributors of product—making them yet another competitor.”

The researchers said that since many pooled vehicles position themselves as offering solutions, asset managers should inform themselves about family offices’ funds and try to make the family offices understand how their products can help the vehicle achieve its solutions.

Distributing their products in family office funds is attractive as well because it requires less time and effort to be included in a pooled fund than in each family’s portfolio.

In a side note, Cerulli said it had found a particular resistance among family offices to wide-scale adoption of passive products when compared with other channels. Its survey of family offices showed that they will allocate only about 15% of their client assets to passively managed products: 8% to index funds and 7% to ETFs.

Family offices prefer to use actively managed products in markets they consider relatively inefficient. They select funds and direct investments that show the potential for superior after-tax performance. For markets they view as relatively efficient, family offices prefer indexed products and ETFs. 

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