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Process Is Key To Performance At Single Family Offices - Wharton School Study

Harriet Davies, Editor - Family Wealth Report, 1 November 2012

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Codifying management policies enhances performance among single-family offices, according to Dr Raphael Amit, a professor at the Wharton School of the University of Pennsylvania.

Codifying management policies enhances performance among single family offices, according to Dr Raphael Amit, the Robert B Goergen professor of entrepreneurship and professor of management at the Wharton School of the University of Pennsylvania.

“When you deal with governance, when you deal with documentation,” and issues like human resources policies and education, that pays off, says Dr Amit. “Process” is the key to performance, and the data is “strikingly clear” on the importance of governance structures.

Dr Amit, who is also chairman of the executive committee at The Wharton Global Family Alliance, was not downbeat about the prospects for “smaller” single family offices despite the fact that a recent study he authored showed these tended to underperform large offices.

The study, Benchmarking the Single Family Office: Identifying the Performance Drivers, found that SFO performance does seem to be linked with the scale of deployable capital. However, Dr Amit does not believe that this spells the end for smaller SFOs, instead pointing out that as well as having more capital large offices tend to have more processes in place. Therefore smaller offices can still be sustainable if they are professionally managed.

Staff headcount has been rising at $1 billion+ offices since 2009, and falling at SFOs below this level, the study found. The average number of staff at billionaire SFOs was 25 in the latest study compared to 16 in 2009; “millionaire” offices “generally reduced” their headcount over the same period.

The 2012 study found that in terms of expense-adjusted quality, high-performing SFOs “far surpass” low-performing SFOs in the following areas: governance, documentation, investment management processes, communication, human resources issues and education and succession planning.

Bringing activities in-house

However, Dr Amit said the study raised some concerns for the wealth management industry. Contrary to some other studies, Dr Raffi is adamant that what he’s seeing is “a sharp increase in per cent of total expenses spent in-house.” What’s more, he says this is because family offices are worried about vendors’ conflicts of interest and performance.  

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