The average cost of operating a family office is over $3 million per year, with expenses ranging from $1 million to over $10 million annually, depending on the size and assets under management. The J.P. Morgan Private Bank Global Family Office Report states that costs are rising primarily due to the increasing competition for talent within family offices. As family offices grow in size and number, they are now directly competing with private equity, hedge funds, and venture capital firms for top talent, driving up staffing expenses significantly.
Smaller family offices, managing less than $500 million in assets, spend an average of $1.5 million annually on operating costs. Those managing between $500 million and $1 billion spend around $2.7 million, while family offices with over $1 billion in assets spend an average of $6.1 million per year. The report also reveals that 15% of family offices incur costs exceeding $7 million, with 8% spending more than $10 million annually. Staffing accounts for the largest portion of these expenses, as family offices are increasingly investing in alternatives such as private equity, venture capital, real estate, and hedge funds.
The shift towards alternative investments has led family offices to compete directly with major private equity and venture capital firms for top talent. They are professionalizing and institutionalizing their operations, hiring staff from other investment firms and private equity companies, which has had a significant impact on compensation levels. As a result, average pay for chief investment officers in family offices has increased by 10-20% since 2019, with CIOs overseeing more than $10 billion in assets receiving just under $2 million in total compensation, including base salary, bonus, and long-term incentive plans.
Recruiters and advisors working with family offices have observed a trend of increasing salaries for all levels of staff, as competition for talent intensifies. Some family offices are offering deferred compensation and profit-sharing arrangements to attract and retain top talent. Family offices are now hiring mid-level managers from private equity firms and providing them with more authority, access to deals, and higher pay to fill senior positions. This strategy allows family offices to compete with larger private equity firms by offering unique benefits, such as exposure to billionaires and their networks, a more personalized work environment, and opportunities for career advancement.
The competition for talent between family offices and private equity firms has become especially intense, with family offices struggling to attract senior-level executives from larger firms. To address this challenge, family offices are focusing on recruiting mid-level managers and providing them with increased responsibilities and compensation packages, including profit-sharing arrangements like those found in private equity. Family offices are now considered attractive places to work due to their competitive pay, access to wealthy individuals and their networks, and the opportunity for employees to have a significant impact within a smaller, more agile organization.
Overall, family offices are evolving into highly competitive entities, actively vying for top talent in the financial industry. The increasing costs associated with operating these offices are a direct result of the demand for skilled professionals and the shift towards alternative investments. By offering competitive compensation packages, unique benefits, and the opportunity for career growth, family offices are positioning themselves as desirable employers in the financial sector, challenging traditional players like private equity firms and investment banks for talent.
