How To Start A Family Office From Scratch

boom people welcome back to the show today we're going to talk about how to actually start a family office so in today's episode we're going to go through what a family office is what is a multi-family office how traditionally a lot of them use trusts but there's this new technique of using limited partnerships or funds to manage a family office as well we're going to talk about how to actually pitch a family offs how to approach them if you want to raise money from them how family offices run internally and finally how the rockefellers used a strategy to maintain their wealth over the last 150 200 years while the vanderbilts and other big families lost their fortunes by the second or even third generation this is a crucial video for all of us that are going to be uber uber wealthy one day and starting running family offices but more importantly for today it's good for you to understand how family offices work and how they are run hi everyone my name is bridger pennington we talk all things funds online and as you guys know we give away a hundred dollars to people who drop the best comment in our chat or something that i like and i want to pick up on today we're highlighting raise shine raise shine has been diligent commenting on a lot of our videos and he said this can you please make a video on how to start a quant hedge fund as you guys know we have other videos on starting hedge funds or private equity funds or venture capital funds how to build them how to put them together i've launched two funds in my 20s looking to launch a third fund right now so ray shine with your comment ah we can look into i think a quant hedge fund video would be pretty cool how those are put together and how they are run with that being said though raeshan you got a hundred dollars coming your way now as some of you guys know my story my dad is the co-founder of a deca billion dollar family of funds and if you guys followed my story i didn't know this growing up we grew up in a very average household i learned in college he was doing very well and to this date my dad has never invested any deal project business anything i bring him i actually pitch him all the time and he never seems to want to invest however what he's given me is advice and mentorship and i had a fantastic mentor to learn directly from additionally my brother is a securities attorney former chief compliance officer at a 800 million dollar real estate fund and right now has actually launched his own fund and doing very well and none of us worked on wall street none of us did the ivy league route we are just entrepreneurs that have figured out this beautiful game of funds and we decided to start a youtube channel and programs to help bring funds to the masses so with that introduction we've had actually quite a bit of exposure to family offices how they run and how they work so let's dive into it so let's start off basic what actually is a family office a family office all it is is a wealthy family and it's all of their assets and money and insurance policies all in one place now again we can talk that can be done through a trust it can be done through a fund model and actually other verticals as well but again in general it's just a wealthy family so let's say this family has 50 million dollars now as some of you know once you make money it's actually kind of a job to deploy that capital into good investments now i know some of you watching like hey i would love that job to have a bunch of money and have the job of deploying my money into good things and here's a little secret if that's what you like funds is the game that's what funds are and you can do this every day as a part of your job so back to the whiteboard 50 million family office usually let's say they had a founder of some company husband and wife they made a lot of money they dumped the money here and they want to live out their retirement however they want this money to continue to grow as we all know inflation is rampant right now and so they don't want that to fall over time so they want it to grow but yet they don't want to spend all the time and effort to manage and watch all their investments so what they do is they create an office for just their investments ta-da family office they will usually hire a chief investment officer or a cfo and maybe another few other people to help manage the finances of the family they'll set up a philanthropic arm and a real estate arm and a stock arm an alternative investment are in a gold and silver and it goes on and on and how much they're gonna pass down to the next generation all that kind of stuff they plan out and they hire people to run that for them typically it's about one to one point five percent of assets goes towards the actual management of the family office so in this case it would be anywhere from 500k to about 700k a year they would spend on hiring people to manage the family office now there's two different common types of family offices you have your single family office sfo or multi-family office and i know you guys in the comments are gonna make fun of different acronyms but that's the acronym all right sfo multi-family office you guys can fly in the comments if you like whatever the difference between these two a single family office runs by itself they actually hire their own people and those people manage the office internally a multi-family office works with other families so there's a group maybe a family that has 30 million another family has 100 million another family has 10 million they all group together and they hire one team to help mitigate the overall expenses of running that entire family office and there's some groups that only do that for philanthropic work just for education work just for next generation there's a lot of different ways this can get split out in the multi-family office universe now one of the main concerns of family offices is to pass down wealth between generations so you have generation 1 g2 and then g3 where it gets bigger and you hopefully want to pay for your kids college tuition or whatever it is that you want to do and you see some sad examples of this in history prince actually just recently passed away with over a 200 million dollar fortune however he had no will or estate planning or family office to manage his finances and when he died they literally didn't know what to do with the money so the courts had to decide who to give the money to they had over 40 people show up and say that they were potential beneficiaries of the prince fortune the court finally ruled they split the money up between his six real siblings and six half siblings because they honestly had no clue what to do with the money another example is the vanderbilt family vanderbilt family was one of the wealthiest families on the planet they did a relatively poor job of setting up family offs in estate planning and by the third generation all the money was lost and actually there was a lot of very rotten kids that they had used as trust fund babies that were benefiting from this so the question begs itself number one how do you set this up and then how do you set up in a way that your generation two your kids or grandkids don't turn into trust fund babies and go in and out of rehab and just have terrible lives we've seen this on hollywood we've seen this in a lot of places people that are given money lottery winners as well most lottery winners that win over 10 million dollars are bankrupt within five years and around 30 percent of them say they wish they had never won the lottery that tells you something about the psychology of people and how money is managed however there is one shining example of a very great strategy and it's from john d rockefeller and the rockefeller family john d rockefeller was the oil tycoon of standard oil and still one of the wealthiest people to ever walk the face of the planet and to this day his family still has a significant amount of wealth when other families a time like the vanderbilts and other families like that lost all their money by the third generation so let's walk through actually what the rockefellers did and how you could potentially do that inside of your family office now when most people think of family offices or passing on wealth they think of a trust a trust has assets they have a trustee that manages those assets they have a grantor which is usually the wealthy individual they grant the assets into a pool they manage those assets and then there's beneficiaries usually the second generation the kid that's where the term trust fund baby comes from where the trust fund sends checks to these kids and it ruins their lives and they get made fun of online and they're just all terrible things that happen and they usually turn out to be really rotten individuals so i want to show you another way to set up this same structure but hopefully won't produce rotten kids and can you can follow some of the principles the rockefellers used to pass on their generational wealth and guess what it's through a fund bridger why is everything in your world through funds because funds run the world and i scream this from my channel but funds run the world and you need to learn about funds and how they work all right i'm off myself box but you get the point now i'm gonna pull from what the rockefellers did and other successful families that i've seen use these strategies so instead of just sending your next generation just checks of a hundred thousand dollars a month and saying good luck go have fun they figured out it's not money that stops people it's usually access to capital we've quickly found out that doesn't work but what the successful family said was we want the next generation to have access to capital if they want to go do entrepreneurship if they want to go start a business if they want to go to college we want them to have access to capital inside of what's called a family bank now the family bank or fund is run just like a regular private equity or venture capital or hedge fund it has a general partner over here with an investment committee of maybe four or five or six individuals that decide on what investments to make so if this is bridger over here and i say hey family i want to go to college i want to get some money to go to university can i just have some free money they say well we're going to run that by our investment committee of six of maybe your aunts and uncles or grandpa whoever and they can decide if they're gonna allocate that money to you now again it's access to cheap capitals what we want to have happen so instead of being gifted a few hundred thousand dollars to go to an ivy league university i number one can decide what university go to and then i can get access to a student loan at a very cheap interest rate from the family bank so the family let's say the family gives me a loan of two hundred thousand dollars at point zero five percent interest rate this is still a loan it's not free money i am given this loan to go to university and i have a note to pay back that money again it's access to cheap capital so if i want to go to a more expensive school i'm gonna have to pay a little bit more of the price to do so let's say a similar situation i have a cousin over here that wants to buy a 10 unit apartment complex and thinks it would be really fun instead of most family offices say well it's our cousin he's a really nice kid let's just give him the money let's see how he does you can come to the family bank you pitch the investment committee of eight again of eight of your aunts and uncles or cousins whoever's on the investment committee and they can decide again to lend you money based on your decision it gives you skin in the game so let's say i needed three million dollars for this 10 unit apartment complex the investment committee can approve that they'll give the cousin 3 million dollars he can go buy those 10 units of apartment complexes and is still on the hook to pay them back yes could he run away and would we go after him probably not but if he ever wants to come back to the family bank he's gonna want to pay back that loan because if he takes the three million dollars and runs well we're gonna know joey cousin joey's a terrible guy we're never gonna lend to him again and he's cut off from the family bank so what this does it incentivizes your next generation two and generation three in generation four to be entrepreneurial it rewards those who take initiative who bring great investments to the family bank or bring great ideas to the family bank and they still have to pitch and close six individuals or seven individuals on the investment committee to get anything allocated to them you guys following along this making sense this is kind of cool so additionally when someone knows you're in a wealthy family that you always are going to get hit up by people oh can you donate to my charity i've got a friend i've got a buddy i've got all this stuff people are always got their hand open asking for money and it's hard from your second or third generation to say no to those friends who want to go do whatever they want to do it helps that second or third generation say yes it's we're open to working with you however i don't have any money you have to come to the family bank and you've got to pitch the investment committee if you can convince them yeah they'll donate to your charity or philanthropy and what it does is it saves your relationship with friends and other people in your life that are asking for money because again you don't control the money the family bank or the family fund controls the money now there's a few more parts that are so cool about this so bridger what if i die what if it's my family office and i die well great nothing happens you're one of the investment committee chairs over here you're one of the six that's you you die everyone's very sad they have a funeral and then they get over it very quickly all the assets are in the family bank the family limited partnership and again i should specify this is not a bank usually because a bank you have to get a charter from this is a family limited partnership just like a fund all of our other videos talk about a general partner limited partnership relationship this is a family limited partnership if you die all of the assets stay in the family limited partnership and then they will elect a new member maybe a cousin or an uncle or somebody that's shown promise to the investment committee additionally this is such an amazing part so if you've got grandkids and you want them to learn about finance and life and entrepreneurship what can happen is let's say once a month this investment committee meets of the six individuals well you'll say hey uh you know our grandkids once you reach the age of 13 years old you can come listen in on the commit committee meetings you have no voting rights but you're allowed to listen in on how we're managing the family money so at 13 years old your granddaughter can sit in and listen on investing decisions on a 200 unit apartment complex they can see how we think about things how we vote on things how we don't vote on things they can start to learn about entrepreneurship about business about real estate about investing in small startups about things we like to invest in things that we don't like to invest in it gives them access to this but doesn't give them the reward like a trust fund and you're not creating trust fund babies boom isn't that kind of cool right so your grandkids your great-grandkids can start learning from the family you have a committee a group of people deciding on with the family together and no one has complete access to the money now yes can there be conflicts that happen a hundred percent and that can happen in a trust and actually probably will more likely happen and trust in other places this is a great way to spread out the control of the family not the money but the control of the money between a lot of individuals and the vote determines what happens so if you keep coming to the family and you're this drug addict and you're just lazy and you don't want to work well the family most likely is not going to vote to give you capital to go buy a new house or apartment complex or whatever it is additionally if you show a lot of promise if you actually do very well you go to school you do well you might be able to get beyond the investment committee one day and actually sometimes the general partner will make a fee for running the investment committee so maybe it's you know point five percent or one percent a year these six members take for managing or running the family office so they get paid a little bit of money it keeps the lights on the bills running for the people that showed promise and again it incentivizes this big family you have now that because after the third or fourth generation your family gets pretty big it incentivizes those members of the family to be smart to be wise to be good investors to be prudent with money to spur on entrepreneurship for them to again have access to money but not have the money themselves given to them they still have to work for it some degree and that's where satisfaction in life comes from satisfaction in life does not come from giving a check from the government or getting a check from a family satisfaction comes from earning it and what this does is give your family access to earn their way in now this is a great time to remind you to like and subscribe this video or comment for 100 below and it really does help this youtube thing it pushes out to more people now bridger how much does it cost to set this thing up it depends on how complex you want to go but this can be as low as three or four or five thousand dollars somewhere in that range now it can go as expensive as you want to be a couple hundred thousand dollars if you'd like to set up this up legally but at a very basic simple level i mean you're looking at maybe five thousand dollars to get something like this a general partner a limited partnership set up you'll set up an operating agreement here and a few other documents to manage your limited partnership again i'm the fun guy online and this is how funds are used in family offices and this is where you can do philanthropic work and help other people throughout your family office thank you guys so much i'm bridger pennington please subscribe and like this video below and i love to see you on our other videos you

Channel: Bridger Pennington

Views: 54,774

Keywords: family office, how to start a family office, trust fund, trust fund memes, Wall Street bets, private equity fund, hedge fund, venture capital fund, real estate fund, Rockefeller family, Vanderbilt family, how to start a hedge fund, how to start a private equity fund, how to start a venture capital fund, what is a trust fund, what is a family office

Id: 5UHh-c-JPN0

Length: 16min 28sec (988 seconds)

Published: Wed Aug 04 2021