The hidden dangers of family offices
Private wealth management companies for the super-rich now manage trillions of dollars globally. Critics say they are open to abuse
Josh Spero in London and Owen Walker in Singapore
Singapore has seen a remarkable rise in the number of single family offices — one of the fastest-growing, and least regulated, areas of finance © FT montage/DreamstimeEarly on the morning of August 15 2023, more than 400 Singaporean police officers raided scores of luxury properties in the city-state’s most exclusive neighbourhoods.
The operation followed a tip-off that several foreign nationals had been laundering huge amounts of money.
Police seized 94 properties and 50 vehicles, along with cash, luxury handbags, jewellery, two gold bars and cryptocurrencies with a total value of S$3bn ($2.2bn).
The scandal shocked Singapore.
But what embarrassed the country’s authorities most was that six family offices — lightly regulated, private wealth-management companies for rich individuals — linked to the money-launderers had not just been used to manage illicit funds, but also received tax benefits from the state.
“It was a huge wake-up call,” says Yishan Lee, head of regulatory compliance for Asia at investment services company IQ-EQ and a former manager at the Monetary Authority of Singapore (MAS), the country’s financial regulator and de facto central bank.
“The criminals found weak points in the banks and family offices,” says an industry figure in Singapore who declined to be named.
“Once it gets in, it starts to flow and it contaminates the entire system.”
The scandal is one of a series of recent controversies that have focused attention on the uses — and potential abuses — of family offices.
The term “family office” is generally understood to mean a private company that provides investment and other services to a wealthy individual or family.
But in most countries its remit and legal structure are largely undefined.
Traditionally a means for rich families to bring their wealth management and legal and business affairs in-house, the sector now encompasses companies performing an array of functions, from asset allocation to philanthropy to lifestyle services such as dog-walking.
(Single family offices are distinct from multi-family offices, which run the investments and other affairs of several principals or families.)
Together, the amount of money they manage is colossal — and growing.
According to estimates by Deloitte, in 2024 there were more than 8,000 single family offices globally, managing $3.1tn of assets.
By 2030, the number is expected to increase to nearly 11,000, managing $5.4tn.
The 320 family offices surveyed in a 2024 report by UBS had an average net worth of $2.6bn.
By comparison, according to figures from the research company HFR, in 2024 the global hedge fund industry managed $4.5tn in total.
In Singapore alone, according to the government, the number of single family offices rose to 2,000 by the end of 2024, with a 43 per cent jump last year alone.
In North America, Deloitte estimates that the number will jump to 4,200 by 2030 — almost double the figure in 2019.
One of the fastest growing areas of finance, family offices are also one of the least understood — or regulated.
Their continued expansion around the world is prompting growing questions about what they are really for, and about what sort of rules should be applied to them.
As Hong Kong’s economy struggles, the government has set a target for attracting new family offices in an attempt to attract wealthy clients to the territory.
A recent alleged fraud case in Europe has brought new attention to the potential for misuse of the term “family office”, while in the US they have been a controversial subject since the implosion in 2021 of Archegos Capital Management, which was classified as a family office but operated as a high-risk hedge fund.
There have been moves in the US Congress to place tighter regulations on family offices, although they have not been passed.
For some critics, family offices can act as a latent source of risk in the financial system outside of the view of regulators.
And at a time when the Trump administration is downgrading the importance of combating white-collar crime, those concerns about potential misuse are likely to grow.
According to Chuck Collins, director of the Program on Inequality and the Common Good at the Institute for Policy Studies in Washington, the potential for abuse of the structure has not gone away since the collapse of Archegos.
Family offices are “an unregulated haven for capital in the US,” he says.
Some are “high-risk investment firms . . . assembling huge pools of capital to invest in different things with no reporting and no oversight.”
Though the term itself did not yet exist, JD Rockefeller is credited as having set up the first full-service family office in 1882 to run both his business and manage his family’s complex investments in one place.
Other Gilded Age clans, including the Carnegies and Vanderbilts, adopted similar arrangements.
But they have since become far more common, partly as a result of wealth-generating events such as IPOs and sales to private equity from the 1990s onwards, including the first tech boom.
According to a 2024 survey of Swiss family offices by the University of St Gallen, core functions of these companies include asset allocation, investing, accounting/reporting and risk management.
Half offered lifestyle/concierge and security services, too.
When it comes to staff, “family offices tend to be very lean,” the former head of one Swiss family office told UBS’s researchers.
A fifth of those surveyed only employed up to three people, while two-thirds had up to 10.
But some extremely rich families have offices that employ hundreds.
The level of professionalism can vary dramatically.
A 2024 English legal case highlighted an Australian man living in Monaco who had asked his yoga instructor to set up his family office in London.
Nick Warr, head of the international private wealth group at law firm Taylor Wessing, says: “On the one hand we have — in the context of lots of Middle Eastern families — maybe the former family lawyer who has three mobile phones and he’s now the family office, and the other end of the spectrum is a fully functioning family office with management capacity, lifestyle capacity, in-house legal, in-house accounting.”
Whereas 20 years ago an individual would need something like $200mn of wealth to set up a family office that is “properly functioning, if you want to have everything in-house”, that figure is now closer to $3bn-$4bn, Warr adds.
The difference between using a private bank and having a family office is like “ready-to-wear vs haute couture,” says Jean-Baptiste Wautier, a former private equity executive who has his own London-based family office, which he describes as “a combination of a mini-fund and wealth management unit”.
“If you can afford your own family office, it will always be by definition better-suited to your needs.”
Michael Viana, head of strategic client coverage for global wealth management at UBS, says: “Every family office is a mirror of the family or the family business that they cater to and the needs they have.”
As global financial centres compete to attract the super-rich, family offices are being used as a lure.
In Singapore, as long as they have an account with a regulated bank and meet various ownership, structural and beneficiary criteria, single family offices can manage money without needing to be regulated as a fund manager, which is significantly more onerous.
And if they meet further requirements, such as being over a certain size and having staff with relevant qualifications, they can receive tax benefits.
Hong Kong also offers significant tax concessions.
Single family offices managing more than HK$240mn ($31mn) and which fulfil other criteria are not required to pay tax on their profits.
Professor Winnie Peng, director of the Roger King Center for Asian Family Business and Family Office at HKUST, says that in Hong Kong, home to an estimated 2,700 family offices in 2023, the government’s target is to attract 200 new ones by the end of this year — if anything, she says, “a conservative number.
I think they can easily achieve this goal.”
In the US, family offices are in principle regulated under the Investment Advisers Act, which requires registration with the Securities and Exchange Commission.
But under the so-called “family office rule”, offices that only serve “family clients” and are owned by the family in question are exempted because the family is deemed “financially sophisticated and less in need of the protections that the Advisers Act was intended to provide,” according to guidance published by law firm Squire Patton Boggs.
There are tax advantages here too: in certain circumstances, US family offices can deduct investment management fees, rent and salaries.
“Once family office expenses reach $1mn, the potential tax savings . . . start to approach several hundred thousand dollars,” said a 2024 report from UBS.
The situation with deductions is similar in the UK, which according to a 2016 estimate is home to about 1,000 family offices, though reliable figures are hard to come by owing to the nature of these businesses.
As Hong Kong’s economy struggles, the government has set a target for attracting new family offices © Chan Long Hei/BloombergBeyond the tax breaks, there are other reasons it might be appealing to set up an office.
Families want “autonomy” to pursue their own strategy, says Lauren Cohen, a professor of finance and entrepreneurialism at Harvard Business School, whether that involves investing in “frontier assets” such as private equity, private credit and cryptocurrencies or directing money to philanthropy and impact investing.
Those alternative assets made up 42 per cent of portfolios, much higher than in mainstream investing, according to UBS’s Global Family Office Report 2024.
Less material considerations sometimes apply, he adds: “There’s more social pressure because more of your friends are doing this.
And so that puts a little more pressure on you if you don’t have one.”
The lightly regulated nature of family offices means there are no restrictions on who can use the label or what they choose to do with it.
Rutger Janse, a Dutch national awaiting trial for an alleged €4mn fraud after raising money from investors without then investing it, had enrolled in at least three family-office conferences as the president and chief executive of Janse Capital Family Office, a company which did not apparently exist.
(Janse told the FT he could not comment because the case was ongoing.)
In the 2023 Singapore case, family offices provided a veneer of respectability for the laundered money, which had been generated through illegal online gambling operations.
The criminals used forged documents to convince banks that the money had come from clean sources, allowing it to flow into Singapore and be managed by the family offices.
The vagueness of the term “family office” can cause confusion, says Sara Hamilton, who founded the Family Office Exchange, a membership organisation in the US.
People will be “masquerading as family offices who are really selling some kind of [investment] product”, she says.
Harvard Business School’s Cohen says that this lack of a formal definition has been a problem in Singapore and Hong Kong: “Anyone can come over and be like, ‘I’m the Professor Cohen Family Office and we manage this.’
And what I would do is pretend to be that, but I’m really a service provider, and then I try to get these benefits [of access] and . . . get introduced into the community.”
This creates a “devolution” of standards, he says.
“If you don’t care about the tax incentive, you just operate as normal, provided you can convince the banks to offer an account for you,” says IQ-EQ’s Lee about Singapore.
HKUST’s Peng says the situation is the same in Hong Kong: only those who want tax advantages have to fit a certain definition of “family office”, otherwise anyone can use the term.
While some argue that the term is sometimes misapplied, Wautier is more trenchant: “I don’t think it’s being misused — I don’t think it has been properly defined in the first place.”
But not everyone is concerned that the term is vaguely defined.
A lawyer who runs a family office forum in London says: “We just need to recognise that it isn’t a single thing, but it’s lots and lots of different things.”
Alarmed at the lack of transparency surrounding family offices and the vast sums they manage, some critics argue that their growth is becoming a problem for regulators, governments and citizens.
In the US, this discussion was turbocharged by the implosion of Archegos.
Set up by former Wall Street trader Bill Hwang to manage his personal assets, Archegos ended up operating like a high-risk hedge fund, at one point managing more than $36bn.
When the company defaulted on its debts in 2021, it owed more than $10bn to creditors and caused Credit Suisse $5.5bn in losses — a significant factor in the bank’s collapse two years later.
Hwang was found guilty of fraud and market manipulation in the US and sentenced to 18 years in jail.
Because Archegos was classified as a family office, it escaped strict disclosure requirements and the fraud went unnoticed until it was too late.
“Family offices have now grown to the point that they are deeply interconnected with the rest of the financial system,” US congresswoman Alexandria Ocasio-Cortez said following the debacle.
“Their activities could affect the stability of our financial markets.”
In an attempt to confront the problem, she introduced a House bill that would require family offices with more than $750mn under management to register as investment advisers with the SEC and report their holdings.
But it did not make it into law.
The Americans for Financial Reform Education Fund, a non-profit coalition, has criticised the regulatory exemptions that family offices are given in the US.
Last year, it wrote to the director of the Financial Crimes Enforcement Network (FinCEN), part of the US Treasury, saying FinCEN’s definition of “financial institution” should include family offices because “the sources of capital” for a number of them had been “problematic”.
It cited the example of Russian oligarch Viktor Vekselberg, whose family office was the majority owner of a US private equity firm and who was later placed under sanctions for his alleged connections to the Kremlin.
(Vekselberg has repeatedly insisted that he has had no involvement in the Kremlin’s political activities.)
Others are alarmed by the sheer amount of money involved — a danger illustrated by the spectacular collapse of Archegos.
“The reason [family offices] pose a higher risk is because the amounts are huge,” says Yishan Lee.
“They have more resources to launder money and therefore make it harder to detect. So when things explode, the consequences can be very detrimental.”
In April 2023, Spain impounded the superyacht tied to Russian oligarch Viktor Vekselberg, whose family office was the majority owner of a US private equity firm and who was later sanctioned for his alleged connections to the Kremlin © Andrey Rudakov/BloombergFollowing the Singapore scandal, the regulator MAS has tightened up its definition of “family office”, including bringing in the requirement that they must have an account with a regulated bank.
It is also enforcing stricter definitions of who counts as a family member, making clear that they must have a common ancestor within five generations of the youngest member.
Last year, Indian authorities announced that they would crack down on them too, in an effort to prevent tax evasion and capital flight.
Some argue that the US and other jurisdictions should do likewise.
Although Ocasio-Cortez’s 2021 bill did not make it into law, Collins of the Program on Inequality and the Common Good argues that family offices “should be subject to the same disclosure requirements that hedge funds must make” and that above a certain size they should give the SEC “information about leverage, investments, risk exposure positions”.
“How large are these pools and are they acquiring critical sectors of the economy?” he asks.
“How do they interact with both public corporations and private companies?”
Yet there seems to be little appetite for change, either within the sector or from outside — and even less now that the Trump administration is in charge, critics fear.
The dangers remain significant, argues Collins: “Three years from now we might be going, ‘Who are family offices and how did they come to control such a huge share of the economy?
How come no one was watching?’”
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