Why do billionaires have family offices?

Bill Gates is one of the largest private farmland owners in the United States. Yes, Bill Gates, the co-founder of Microsoft, owns almost 3 lakh acres of farmland and nearly all of this was purchased after 2010. In the context of land acquisitions, we would call it relatively recent. Now, being a business magnate, Bill Gates surely has investments in stocks, bonds, startups, and similar assets. However, he also owns a lot of alternative assets like hotels and, yes, farmland. When Microsoft was listed on exchanges in 1986, Bill Gates owned almost 50 per cent of the company. However, today his ownership is slightly above 1 per cent. And that is completely by choice - not Bill Gates’ choice, but Michael Larson’s choice. Who is Michael Larson? Michael Larson is head of Cascade ventures, the family office of Bill Gates. Now, you might have heard many times how billionaires are setting up their family offices somewhere. There are quite a few popular family offices in India — Deepika Padukone’s KA Enterprises, Narayan Murthy’s Catamaran Ventures, Azim Premji’s Premji Invest, and the Mariwala family’s Sharp Ventures. This trend of having family offices is catching on these days – with Mukesh Ambani being the latest in news. Now, these people are so filthy rich that it is tough for them to manage their family money. And not just money, even running their day-to-day family expenses becomes tough. And that’s why they set up family offices. Of course, the family office gets paid handsomely. However, the annual expense of running a billionaire family itself can run into a few hundred crores, so spending a few crores over consultation is quite reasonable.

We often invest in a mutual fund, so that the fund manager invests and manages the stocks or fixed-income securities, for us. Similarly, family offices are entrusted with managing practically everything. They constantly keep analysing and providing consultation to their billionaire client and also execute the same once they get a nod from their client. They invest money in stocks, IPOs, bonds, deposits, etc. the easier part of their job. And then, they also invest money in real estate properties, hotels, office spaces, warehouses, etc. These family offices also take care of alternate investments such as startups and venture funding, if the owner of the money wishes to. They build a complete portfolio of investments with all the necessary diversification, without worrying the owner with research, analysis, documentation or legal formalities. However, investing is not the only thing they take care of. Taxes go hand in hand with wealth management. How much tax is to be paid, when is it to be paid, how can the person save on taxes – all these are taken care of by the family office. They also manage the insurance of the owners and their assets.

Family offices are more like the head of the family making decisions, and not just a fund manager. While some families limit their scope to certain aspects such as finance and wealth management, while others go much beyond. For example, some family offices are tasked with teaching the next generation of the family about investing and finances. They also draw up plans for what happens when a person dies naturally or unexpectedly. Family offices also allocate money and define limits for lifestyle use — sports cars, watches, boats, etc. These offices also look after all the spending — ensuring the cars are serviced, the hotels are booked during travel, etc.