Running a family office is no longer a cheap endeavor, with the average cost now surpassing $3 million per year. According to a recent study by the J.P. Morgan Private Bank, wealthy families are spending anywhere from $1 million to over $10 million annually to operate their family offices. This increase in costs can be attributed to the growing competition for talent, driving up staffing expenses across the board. As family offices continue to expand in size and number, they are increasingly competing directly with private equity, hedge funds, and venture capital firms, resulting in a “war for talent” within the industry.

The costs of operating a family office vary widely depending on the assets under management. Family offices managing less than $500 million spend an average of $1.5 million per year on operating costs, while those with assets above $1 billion average a hefty $6.1 million annually. Staffing remains the biggest cost for family offices, as the demand for senior talent continues to rise. The competition for talent has led to an increase in compensation packages, with family offices now offering competitive salaries and long-term incentive plans to attract and retain top talent.

Family offices are increasingly shifting their investments into alternative asset classes, such as private equity, venture capital, real estate, and hedge funds. According to the J.P. Morgan survey, U.S. family offices now allocate more than 45% of their portfolios to alternatives, compared to 26% in stocks. This move into alternative investments puts family offices in direct competition with major players in the industry, further driving up the demand for top talent. The professionalization and institutionalization of the family office space have led to a significant impact on compensation, with overall pay increasing by 10% to 20% since 2019.

A survey conducted by Botoff Consulting revealed that 57% of family offices plan to hire more staff in 2024, with nearly half extending raises of 5% or more to their existing employees. The demand for talent has become frenzied in recent years, leading to a surge in compensation for key positions within family offices. Chief investment officers overseeing family offices with more than $10 billion in assets can expect to earn close to $2 million in annual compensation. Family offices are now adding long-term incentive plans, such as deferred compensation, to sweeten compensation packages and attract top talent.

Family offices are facing stiff competition from large private equity firms when it comes to attracting top talent. As more single-family offices engage in direct deals and investments, they are trying to lure talent away from industry giants such as KKR, Blackstone, and Carlyle. While family offices may struggle to compete at a senior level with these firms, they are finding ways to attract midlevel managers by offering more authority, better access to deals, and higher pay. Some family offices are even providing profit-sharing opportunities, known as a “carry,” similar to what is offered at private equity firms.

The landscape of family offices is rapidly evolving, with rising costs and increased competition for talent forcing a paradigm shift in the industry. Family offices are no longer seen as a place for professionals to wind down their careers but rather as dynamic, high-stakes environments where top talent is in high demand. As family offices continue to professionalize and expand their reach into alternative investments, attracting and retaining top talent will remain a key priority for the industry.

Wealth

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