Goals and Objectives

• Support the varied goals and objectives of individual family members
• Simplify the complexity of the family’s wealth
• Diversify the family’s assets
• Create a legacy for generations to come

Caprock’s Integrated Plan of Action

Emphasis on Alignment and Structure to Foster Harmony

Addressing the Family’s Differing Goals and Objectives

The Caprock team engaged in a comprehensive onboarding process designed to better understand the full extent of the family assets and identify the needs of individual stakeholders. This included an in-depth review of existing investment accounts, legacy assets, private placement memoranda, capital account statements, trust documents, tax documents, and entity structures.

We leveraged our experienced team and cutting-edge technology tools to clearly define the breadth and depth of the family’s wealth and how it impacted each individual family branch and beneficiary. We inventoried the family’s assets and built detailed ownership structures. This allowed us to create accurate and dynamic ownership records in our centralized reporting platform. The Jones family and their key advisors had access to the real-time data, enabling them to collaborate on assets and risk exposure, as well as providing a framework for how decisions made today will impact future wealth.

This brought clarity and peace of mind to the Joneses, reduced family friction, and provided the ability to provide bespoke advice to individual family members, as well as the family as a whole.

Simplifying the Complex Web of Existing Trusts and Partnerships

Our team was able to work with the family’s other professional advisors, including their attorneys and accountants, to simplify the complexity of their wealth, diversify their assets, and create custom portfolios for individual trusts. Caprock, an independent firm without ties to a broker-dealer, offered objective advice and curated investment solutions, all within a high-touch business model.

While there are still decisions that the family needs (and wants) to make together, we’ve built governance structures around their legacy assets and enabled each family branch to make decisions that support their long-term objectives.

Diversifying to Preserve Their Wealth Long-Term

Caprock’s seasoned professionals taught the family how to narrow down the vast array of investment options to what works best for them. They implemented a holistic approach for long-term wealth preservation that included multi-generational planning, tax optimization, and portfolio diversification. And our scale allows us to provide access to top-tier private investments, typically only available to large pensions and endowments.

Through several meetings and discussions with the family, we prepared the next generation to be good stewards of the family assets and ingrained an understanding of the power of compounding wealth. We also taught the next generation about the importance of leaning into their values and placing a focus on philanthropy, which the patriarch wanted to pass down to his family.

Fast Forward

Now each member of the Jones family has more autonomy. They can make decisions that are best for them and the next generation. We separated most of their assets, established control processes, and clearly outlined expectations for those assets that remain locked together.

In the end, we simplified the complexity of their wealth while diversifying their portfolio for stronger, lasting returns and an even greater legacy. The family has established clear succession plans and a well-defined purpose, which have significantly reduced discontent within the family.

The post Case Study: How a Second-Generation Family Succeeded in Untangling a Web of Complex Assets appeared first on Caprock.

In an increasingly complex financial landscape rife with evolving tax laws, partnering with a knowledgeable advisor and executing the right tax mitigation strategies can determine whether you retain more of your wealth or see it erode over time. Here are a few topics to discuss with an advisor when looking to reduce your tax liability.

Tax-Efficient Investment Strategies for Wealth Preservation

Leverage Tax-Loss Harvesting

Among the many tax mitigation strategies we leverage at Caprock, tax-loss harvesting continues to be one of the most effective. According to one study, a tax-loss-harvesting strategy yielded a before-transaction-cost tax alpha of 1.08% per year, which may not sound like a lot, but for large scales of wealth, this is a significant amount as it compounds over time.

Tax-loss harvesting is when one sells underperforming securities at a loss to offset capital gains taxes owed from selling assets that are profitable. Take for example, an investor who earns $100,000 in capital gains by selling appreciated stocks but holds other stocks that dipped in value, creating an unrealized loss of $20,000. If the investor harvests that loss by selling the diminished shares, they can subtract the $20,000 capital loss from the $100,000 in capital gains for a net capital gain of $80,000, thus reducing their tax burden.

At Caprock, our tech-powered platform empowers advisors to analyze each client’s portfolio throughout the year. Opportunities to implement tax-loss harvesting and preserve more of their wealth are identified by sophisticated analytics and data connectivity. This mix of technology and dedicated advisors ensures investors make timely, informed decisions and stay in line with tax-loss harvesting rules. 

And if your portfolio is stagnant and at a point where there are no stocks at a loss (this is called portfolio ossification), we have strategies to work around that.  

Don’t Sleep on Estate Planning

It’s never too early or too late to connect your estate attorney with your advisor. The two must work in lockstep to ensure the estate is well-structured, tax-efficient, and legally compliant. The estate plan should then be reviewed regularly to ensure it meets your goals. Effective estate planning strategies for high-net-worth families can significantly reduce your taxes by leveraging tactics like gifting, charitable contributions, trusts, and tax-advantaged accounts. These methods help ultra-high-net-worth individuals and families mitigate their tax burden during their lifetime and when transferring wealth.

The goal is to make sure more of your estate’s wealth is passed on to your heirs.

Stay Apprised of Evolving Tax Laws

Evolving tax laws can significantly impact the effectiveness of tax mitigation strategies. Whether the result of shifting government policy, economic conditions, or regulatory guidance, changing tax laws can throw a wrench into any wealth management plan.

For example, the federal Tax Cuts and Jobs Act of 2017 nearly doubled the estate and gift tax exemption, helping the ultra-wealthy pass along substantial gifts tax-free. That exemption is scheduled to be sunset at the end of 2025 and will significantly lower the tax-free threshold.

As existing tax strategies become less effective and new methods of minimizing tax liability come to light, it’s important to work with an advisor who has their finger on the pulse of the dynamic tax landscape.   

Assess Your Tax Burden

Tax mitigation strategies are often an overlooked component of the overall approach to wealth management.

At Caprock, we place tax management in the foreground. We bring together a highly skilled, tech-savvy team of advisors who specialize in crafting tailored, intricate tax mitigation strategies.

Contact Caprock for an assessment of your tax burden and potential opportunities to retain more of your wealth.

The Caprock Group, LLC (“Caprock”) is an SEC Registered Investment Advisor. This communication is not an offer or solicitation with respect to the purchase or sale of any security and is for informational purposes only. Information contained herein has been derived from sources believed to be reliable, but Caprock makes no representations as to its accuracy or completeness. Investment in securities involves the risk of loss. Past performance is no guarantee of future returns. Registration with the SEC does not imply a certain level of skill or training. Caprock, its Employees, Affiliates and Advisers are not tax or legal professionals and do not provide such advice. Therefore, the discussions contained herein are for informational purposes only and should not be construed as a recommendation or endorsement of a strategy. Please consult with your tax or legal professional for further guidance and information.

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Solow is an experienced wealth manager who spent over 15 years as a private wealth advisor for Goldman Sachs Private Wealth. He co-led a team that managed more than $5 billion in assets and advised high-net-worth clients.

“We are excited to welcome David to Caprock. His knowledge and experience in working with CEOs, entertainers, athletes, private-equity principals, and high-end attorneys will further enhance Caprock’s services,” said Caprock co-CEO Bill Gilbert.

Caprock Co-CEO Gregory Brown added, “Caprock serves sophisticated clientele with complex wealth management needs and David’s experience will expand our capabilities and bring more value to clients. He will be a strong addition to the Caprock team.”

Solow began his career as an attorney with Neal, Gerber and Eisenberg after graduating from Stanford University. He then pivoted into wealth management when he joined Goldman Sachs in 2009. In addition to working with clients, Solow led training and development for Goldman’s younger advisors.  He has long been active in multiple civic support organizations including those in the Jewish community. Solow said, “I am thrilled to join Caprock where I have the opportunity and responsibility to act as a fiduciary to represent my clients’ best interests. As I spent time learning about the changing landscape of our industry, I was incredibly impressed with Caprock’s modern approach to providing clients with investment opportunities and flexible solutions.

Caprock has been providing family office services since 2005. The firm’s expansion has been deliberate, with an emphasis on bespoke wealth management for ultra-high-net-worth individuals and families. Their solutions are tailored to their clients’ specific needs to help them achieve their financial objectives.

Media Coverage

Crain’s Chicago Business

Wealth Solutions Report

Investment News

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With investor generosity soaring for decades, charitable giving by Americans has grown sevenfold since the mid-20th century, according to Philanthropy Roundtable. In fact, data from the Indiana University Indianapolis Lilly Family School of Philanthropy shows that charitable giving totaled more than $557 billion in 2023.    

While donors have several options, we at Caprock often focus on two approaches most popular with the high- and ultra-high-net-worth individuals and families we work with: donor-advised funds (DAFs) and private foundations. These options provide differing structures, regulations, and tax treatments, each with its own set of unique advantages and limitations. 

A Straightforward Way to Give Back: How Donor-Advised Funds Work

DAFs, in short, are giving accounts that are offered by and housed in a public charity such as a community foundation, financial institution, or university. They are tax-advantaged philanthropic vehicles that allow donors to make charitable donations, receive a tax deduction, and then recommend grants from the sponsor over time.

This works by contributing assets, like stocks or cash, to the DAF. There, those assets can grow tax-free until the donor decides how and when funds are granted to a philanthropic organization of their choosing. That organization often has the final say over how those funds are used.

As the name DAF implies, donors can only advise the charitable sponsor on how their assets should be distributed. The charitable sponsor has the authority to approve or deny those recommendations.

While they may limit some control over your charitable giving, DAFs are relatively inexpensive, simple to set up, and are a great way to help donors centralize their charitable giving and reduce their taxable income.

What is a Private Foundation?

Private foundations, on the other hand, are stand-alone, tax-exempt legal entities generally established by an individual, family, or corporation that are governed by their own set of bylaws and articles of incorporation, making them more complex.

More Control and More Complexity

Unlike a DAF, a private foundation is its own separate entity that can be staffed with family or anyone of your choosing.

Though private foundations offer a greater level of control over charitable giving while still offering tax benefits, the drawbacks include higher operating costs and administrative burdens.

They also have lower tax deduction limitations on gifts. Whereas DAFs offer deductions of up to 60% of adjusted gross income (AGI), foundations are limited to 30%.

Private foundations are also subject to more stringent tax laws, regulations, and requirements than a DAF, but allow for the ability to make grants to entities that are not 501(c)(3) public charities, such as other foundations, needy individuals, and scholarship programs, to name a few.

Though establishing a foundation comes with more complexity, it is a great way to maintain control over your charitable giving and keep your family engaged.

Comparison of Donor Advised Funds (DAF) vs. Private Foundations

Securing Guidance and Support in the Decision

Choosing the right philanthropic vehicle is as important as the cause you donate to, and the decision should be made with a dedicated wealth advisor who is aligned with your vision. It depends on several factors, including your charitable goals, financial situation, desired level of control, and available resources.

At Caprock, we have extensive experience in helping high-net-worth individuals and families navigate the charitable decision tree. We are extremely thoughtful and have a tried-and-true process for selecting the charitable vehicle that aligns with your philanthropic objectives.

Contact Caprock. We can support your charitable giving goals.

The Caprock Group, LLC (“Caprock”) is an SEC Registered Investment Advisor. This communication is not an offer or solicitation with respect to the purchase or sale of any security and is for informational purposes only. Information contained herein has been derived from sources believed to be reliable, but Caprock makes no representations as to its accuracy or completeness. Investment in securities involves the risk of loss. Past performance is no guarantee of future returns. Registration with the SEC does not imply a certain level of skill or training. Caprock, its Employees, Affiliates and Advisers are not tax or legal professionals and do not provide such advice. Therefore, the discussions contained herein are for informational purposes only and should not be construed as a recommendation or endorsement of a strategy. Please consult with your tax or legal professional for further guidance and information.

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A few years ago, the Jones family, as we’ll call them, came to us with challenges that we’ve seen many times before with ultra-high-net-worth families. Their patriarch, who managed their single-family office, passed away, leaving the next generation in search of a solution to manage a complex estate with a heavy focus on real estate. Honoring the values of the patriarch, who had strong views on the power of compounding and philanthropy, the family engaged Caprock to begin the process of creating bespoke portfolios for each family branch.

By engaging the advisors at Caprock, who are familiar with such scenarios and the complexities of generational wealth structures, the Jones family was able to simplify the complexity of their wealth and diversify their portfolios while having their individual – and often conflicting – needs met.

At a Glance

• Complex, ultra-high-net-worth family
• Patriarch set up a single-family office before passing
• Second generation is now managing wealth together
• A complicated web of trusts
• Complex assets with significant cross-ownership

The post Case Study: How a Second-Generation Family Succeeded in Untangling a Web of Complex Assets appeared first on Caprock.

Public Markets vs. Private Markets: Why You Need Both

There are several reasons why public markets play a crucial role in any ultra-high-net-worth portfolio. First, publicly traded investment vehicles offer high liquidity because they can be bought and sold quickly. This provides investors with better access to their capital. 

Investing in public markets, which offer varied asset classes across myriad sectors, also opens the door to greater portfolio diversification, helping to mitigate risk.  

Public markets are highly regulated, which helps protect investors and ensure business practices are above board. And since public companies must disclose financials regularly, investors experience a level of transparency that can influence investing decisions while providing peace of mind.  

Additionally, the minimum investment required to take advantage of public markets is often far less than what’s needed to plunge into private markets. Public markets also provide long-term returns that often outpace inflation. In fact, as reported by MarketWatch, the U.S. stock market has beaten inflation by 6.1% on an annualized basis since 1793, according to research by Santa Clara University Professor Emeritus Edward McQuarrie. 

The Approach: Rely on Process, Not Predictions

With thousands of publicly traded companies and various asset classes including but not limited to stocks, bonds, and Exchange Traded Funds (ETFs), investors have many choices when deciding where to invest. There are more than 40,000 publicly traded companies on the equities side and more than 3 million securities on the fixed-income side. The number of options can easily become overwhelming. 

Instead of investing in the assets-du-jour or making decisions based on instinct, Caprock uses a tech-enabled approach to establish separately managed accounts (SMAs). Technology focusing on data optimization, dynamic asset allocation, continuous tax loss harvesting, and long/short extensions prioritizes scalability and individualization. This method allows us to effectively create highly customized portfolios that provide long-term growth and take advantage of short-term market volatility. We stay ahead of paradigm shifts in the industry through extensive research and continuous monitoring. Again, it’s all about having a strategic, pre-planned process. 

For example, numerous market predictions for 2020 never came to fruition once the pandemic, which no one saw coming, took hold. At Caprock, our reliable process and tech-forward approach allowed us to dynamically rebalance portfolios and conduct tax-loss harvesting to take advantage of market volatility and preserve clients’ wealth. 

The lesson here is that it’s important to eschew reliance on predictions when investing in public markets and work with an advisor who not only has plenty of experience but also a process-driven approach. 

Educate to Elevate

Before making any decisions, it’s important to educate yourself. Often, the best way to do this is to consult a financial advisor with deep public markets expertise and a solid foundation in using financial technology. They can help you understand the markets, the opportunities, and the risks. At Caprock, we have a diverse, experienced team who have more than $7 billion invested in public markets on behalf of our clients.  

Request a personalized preview of our quantitative tech-enabled approach.

The Caprock Group, LLC (“Caprock”) is an SEC Registered Investment Advisor. This communication is not an offer or solicitation with respect to the purchase or sale of any security and is for informational purposes only. Information contained herein has been derived from sources believed to be reliable, but Caprock makes no representations as to its accuracy or completeness. Investment in securities involves the risk of loss. Past performance is no guarantee of future returns. Registration with the SEC does not imply a certain level of skill or training.

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Given its meteoric rise over the last decade, impact investing – defined as investments made to generate positive, measurable social and environmental impact alongside a financial return – has become much more than a trend. It has evolved into a global movement and a reliable component of countless portfolios.  

Small Steps for Big Impact 

So where should a new impact investor begin?  

Integrated impact investing is not complicated and can be executed through a full portfolio approach. With the right impact investing firm at the helm, investors looking to make a social impact or environmental change can set themselves up for success. 

In supporting our clients, we at Caprock take a holistic finance-first approach. This means not sacrificing financial returns for impact results. Instead, strive for market-rate or above-market returns while also generating positive social and environmental impact. Next, understand that impact investments should be focused on private securities, particularly private companies and funds, to address social and environmental problems that are important to you. This is in contrast to ESG (Environmental, Social, and Governance) investments, which are more public market-oriented. Impact investing funds, which are entities that pool money from multiple investors, are also a smart way to invest for diversification because they can expose you to different sectors, impact themes, and asset classes, helping to reduce risk.  

Because impact investing relies heavily on private markets, investors should work with a professional who has a large network, closely follows the impact investing landscape for trends and insights, and has a front-row seat to the myriad impact funds that are available. A great resource is the ImpactAssets 50, a database of the world’s top impact investment fund managers, and Impact Capital Managers, a network of more than 140 leading and innovative impact fund managers.   

When vetting impact funds, bringing the same rigor, discipline, and process as for any traditional private- or public-market investment is critical. On top of that, there should be an added layer of diligence that evaluates the fund’s impact measure and management, impact thesis, and intentionality. When investing for impact, it’s critical to have a defensible impact thesis that can be measured and analyzed similarly to financial performance. The impact investing industry continues to evolve with new and improved frameworks, standards, and tools for impact measurement, including GIIN’s Impact Reporting and Investment Standards (IRIS) framework. At Caprock, we build on the IRIS metrics and utilize a proprietary framework and software to analyze and present impact data to clients, and we believe we are the only firm with this capability. 

Is Impact Investing for Everyone?

The short answer is that it can be. Every investor has different financial and impact objectives, so we often recommend investing in macro trends that are expected to have positive long-term impacts. Climate investing is just one example. We recommend this because macro trends offer significant growth potential and can often be more predictable and persistent than other types of investments. That said, every investor is going to be different, so it’s our job at Caprock to meet them where they’re at and ensure they are educated and have clear goals and objectives. 

While Caprock firmly believes a finance-first approach to impact investing can unlock more capital leading to a positive demonstration effect, we are also equipped to support our clients who wish to invest in catalytic impact opportunities, which have a more impact-first approach. However, this is not for everyone and is more tailored to individuals and foundations who want to move the needle further to solve some of the world’s problems through investments. 

Caprock Can Help 

Caprock was among the first multi-family offices to offer impact investing as a core service, and we have invested in more than 100 impact investment funds with nearly 50 impact fund managers, totaling upward of $2.4 billion.  

With a strong track record and a vast network that frequently provides access to new impact investment opportunities, we’re ready to help you no matter where you are on your impact investing journey. 

Request an impact investment portfolio sample. 

©Caprock. All rights reserved. The Caprock Group, LLC (“Caprock”) is an SEC Registered Investment Advisor. This communication is not an offer or solicitation with respect to the purchase or sale of any security and is for informational purposes only. Information contained herein has been derived from sources believed to be reliable, but Caprock makes no representations as to its accuracy or completeness. Investment in securities involves the risk of loss. Past performance is no guarantee of future returns. Registration with the SEC does not imply a certain level of skill or training. 

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In 2009, Andy, a successful young business owner, received a compelling and unexpected offer from a larger competitor and sold his business, with limited pre- or post-transaction planning in place. As a result, Andy and his family were faced with the complexities that accompany a significant liquidity event and the uncertainties of navigating life beyond his business.

By engaging the specialists at Caprock, who are familiar with such scenarios and experienced in addressing the resultant financial, professional, and personal challenges, Andy and his family transformed a potentially volatile scenario into a well-conceived and well-executed long-term blueprint for success on all fronts.

At a Glance

• 35-year-old sole proprietor; married with two children
• New to the financial, practical, and emotional complexities associated with the sale of a business
• Subject to a non-compete clause, necessitating maximum financial flexibility for the family
• Not interested in retiring and wanted to continue entrepreneurial endeavors
• Recognized the need for broad wealth management expertise

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In a nutshell, what’s the difference between private investment opportunities versus public markets? 

At the highest level, investing in private markets is no different than investing in public markets. You are owning securities, whether it be debt or equity, in a business, but that business isn’t publicly traded.  

Most businesses out there aren’t publicly traded. There are about 4,500 public stocks in the United States, and there are 7 million companies that have at least one employee, according to the U.S. Census Bureau. By that number, the vast majority of businesses in the country are not publicly traded, and by gross domestic product, it’s well over half of our GDP.  

By not exploring private markets, you are missing out on a lot of opportunity. I should also note that private equity is harder to access than public equity, which, by definition, can be owned by anyone. There are regulatory restrictions around who can participate in private equity that limit access to ultra-high-net-worth individuals and larger institutions. But that is changing. 

What are the various methods of investing in private markets? 

When we think of private markets, we divide the world into three parts: private equity and venture capital, private credit, and real assets.  

Private equity funds are pooled investment vehicles that acquire equity stakes in private companies. Investors commit capital to the fund, which typically invests in companies for a handful of years before exiting through a sale, IPO, or other means. Venture capital funds are similar to private equity but focus on early-stage startups or growth companies.  

Private credit investing is the method of providing loans or credit to companies or projects that are not funded through traditional bank loans or public markets. In a low-interest environment, this type of investment can be a boon to a portfolio.  

Then you have real assets, or real estate, which are private investments into hard assets like property or infrastructure and are often a lot more tax efficient because of accelerated depreciation and other types of tax benefits. Because of this, private market investors will often have a large allocation to real estate.  

What are the primary benefits of investing in private markets? 

Most investors don’t need large-cap equities. They don’t need high-yield bonds, per se. What they need is capital appreciation. They need income and diversification. These are the building blocks of any strong investment portfolio.  

Private markets can provide an opportunity for more capital appreciation and more income than what you get in publicly available counterparts. If you invest in private equity, it should beat the stock market. If you invest in private credit, it should beat public bonds.  

A lot of innovation happens in private markets. It’s when the big public companies wind up acquiring them, or they go public, that you see growth slowing. Growth is mostly happening in the private markets. They are typically growing faster, and that’s what you want if you seek capital appreciation. What you give up for that is liquidity. So, investors need to be thinking through how much of their portfolio they need to have access to month-to-month and shouldn’t invest in private markets beyond that. 

What are the common misperceptions about private market investing? 

The idea of risk in private market investments is misunderstood. In public stocks, we think about the volatility—how much stocks oscillate as they trade over time. Volatility in the context of private markets is almost irrelevant—the relevant risk is liquidity. The risk is not being able to access or sell an asset for many years at a time, or to only do so at a significant discount. 

There’s a perception that private market investing always leads to higher returns without the associated risks. This is untrue. While private market investing can offer appealing returns, there are significant risks, such as illiquidity or a business you are invested in failing. Another myth is that everyone should have private equity and private credit in their portfolio. The truth is private equity and private credit might not meet your liquidity needs. It’s also a myth that private equity is entirely inaccessible to most investors. While that may be true directly, by aggregating client capital, advisors like Caprock can create exposure to best-in-class managers that would have historically only been available to large institutions using single-asset Special Purpose Vehicles (SPVs) and commingled limited partnership structures. 

What are common pitfalls to avoid when investing in private markets? 

One thing to know about investing in businesses that are not publicly traded is that there’s not as much information available on them. Their financial information and how they report it is not overseen by a regulator like the SEC, so there’s a lot of variability. It’s critical that your advisor does an extreme level of due diligence before committing to a private market investment. There is a very big difference between an advisor who looks at 40 funds before selecting an option for clients and one who investigates 400 funds. In any given year, Caprock is taking meetings with well north of 500 unique private market funds to invest in 15 to 20.  

If mistakes are made when investing in private markets, it’s difficult to unwind them because it’s an illiquid asset class. Think of it like buying a house. If you purchased a house in a bad neighborhood, that’s a difficult investment to undo.  

Since liquidity is the most significant risk in private markets—once allocated, it will take years to realize a full return on money—it is vital to plan your target allocation carefully. 

Working with an advisor who can help establish a prudent liquidity budget and a reasonable pacing plan can help investors avoid getting into a situation where they are overcommitted and face a liquidity crunch down the road. 

 One of the benefits of being an independent advisor is an open architecture platform. Advisors like Caprock can access virtually any private market fund or manager in the world and can focus on the opportunities that present the best risk-adjusted return. Other business models, such as the big bank platforms, have conflicting business lines and internal products where hidden fees and commissions can often trump finding the best opportunities for clients.  

How can people start investing in private markets? 

It begins with liquidity budgeting and a pacing plan in the context of your overall balance sheet considerations and asset allocation relative to your investment objectives. Figuring out how much capital appreciation, income and liquidity you need is key. Speak with an experienced advisor about your goals and opportunities in private market investing.  

At Caprock, we have a diverse team with deep expertise in private investment asset classes. We have invested more than $4.6 billion in private markets on behalf of our clients across 440 investments. With more than 20 years of experience in investing in private markets, Caprock’s team of six dedicated private markets investment professionals is happy to answer any questions you may have.  

About the Author

Chris Schelling is the Managing Director of Private Markets at Caprock. He is an investor, advisor and published author. With degrees in psychology, business, and finance, Chris is an expert at incorporating insights from behavioral finance into investment decision-making. During his 20+ year tenure in the investment industry building portfolios, mostly focused on alternatives, Chris has met with over 3,500 managers and allocated roughly $7 billion, generating top quartile to top decile returns across hedge funds, real assets, private credit, and private equity.

©Caprock. All rights reserved. The Caprock Group, LLC (“Caprock”) is an SEC Registered Investment Advisor. This communication is not an offer or solicitation with respect to the purchase or sale of any security and is for informational purposes only. Information contained herein has been derived from sources believed to be reliable, but Caprock makes no representations as to its accuracy or completeness. Investment in securities involves the risk of loss. Past performance is no guarantee of future returns. Registration with the SEC does not imply a certain level of skill or training.

The post Demystifying Private Market Investing appeared first on Caprock.

There are several considerations when deciding which path to take, but first, let’s define what constitutes MFOs versus SFOs. Family offices, by nature, have a fiduciary duty to act in the family’s best interests above all else, unlike a big bank acting as a broker-dealer. As the name implies, MFOs, like Caprock, cater to the wealth management needs of multiple affluent families. In contrast, SFOs are structured as standalone businesses dedicated to managing the wealth of a single family, generally understood to have at least $1 billion in net worth. But that isn’t where their differences end.

Complexity of wealth management

Since SFOs are typically established by ultra-high-net-worth families to manage their wealth exclusively, this allows for the recruitment of people who provide services tailored specifically to the family’s unique financial goals and needs. This structure offers a personalized, highly tailored solution, allowing for direct asset management. However, an SFO may limit your family’s access to investment opportunities and may not be suitable for complex family dynamics.

MFOs, on the other hand, are equipped to provide investment access and bespoke service to multiple wealthy families. They offer a broad range of services and can act as an unbiased partner supporting all family members involved. This management structure addresses a variety of wealth complexities and empowers the family across generations. The cost for an MFO varies, but it is generally a flat percentage of assets under management (AUM) or a flat fee plus cost scenario.

The Caprock method offers a solutions-based approach to wealth management for ultra-high net worth families. This model provides support for an array of complexities, including business entities, real estate and other private assets, charitable accounts, taxable and tax-exempt statuses, cash flow and liquidity concerns, multiple generations of stakeholders, and various estate, legal, and tax advisors. A single fee is negotiated at the onset and tailored to the family’s needs.

Cost considerations

Establishing and maintaining an SFO can be a significant financial investment, as one family must assume the complexity and front all costs associated with several factors including but not limited to staffing, employee benefits, technology, infrastructure, security, investment fees, and ongoing operational expenses.

A majority of the costs associated with maintaining an SFO come from investment advisory fees (45%) and internal operating costs (40%), according to a guide from Citi Private Bank. For example, staffing costs can add up quickly. Citi’s guide, which cites a report from Botoff Consulting, shows that hiring just three staff to operate an SFO can cost a median of $850,000 in annual base salary alone.

While establishing an SFO may cost millions, depending on the assets under management and many other factors, MFOs can provide operational cost-sharing among multiple families, potentially reducing individual costs through economies of scale. Caprock, for example, manages more than $11 billion in assets, leveraging a robust technology platform that provides comprehensive investment management and reporting on a client’s entire balance sheet.

In the cost comparison aspect, assess the amount of investment you are comfortable with for the specific services you want to be managed before deciding which type of family office to pursue.

Access to resources and experienced professionals

Since SFOs focus on the needs of one family, they can provide a deep source of knowledge on financial management, investment opportunities, and service professionals. MFOs serve as an exclusive club with a diverse team of professionals offering a wide range of expertise, including investment management, tax planning, estate planning, dedicated reporting across the entire balance sheet, and more. Caprock employs a team approach with professionals from diverse industries and advisors who are well-versed in financial management, due diligence, idiosyncratic risk, public and private investment asset classes, and client services.

While SFOs provide a certain depth of knowledge, MFOs provide both a depth and breadth of understanding that drives access and deal flow while serving a family’s complete financial picture. This is especially important when looking to diversify your private market investments.

Weighing the options

As with any significant life choice, family office options have pros and cons. Deciding whether a single-family office or multi-family office comes down to complete control and management versus a shared approach where you may achieve more access to services and investments at a reduced cost.  Choosing between an SFO and an MFO depends on your family’s unique needs and preferences. While there are signs that an MFO is the way to go, a trusted financial advisor can help you navigate this decision-making process and select the option that best aligns with your family’s needs.

Caprock’s network of experienced advisors, backed by a seasoned investment team and dedicated support staff, provides comprehensive wealth and investment management tailored to each family’s needs.

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