Money Will Not Manage Itself

By Pieter Hundersmarck.

Written by financial journalist Walter Bagehot in his 1873, the phrase "money will not manage itself" referred to the fact that financial and banking systems need a guiding hand to function properly.

The phrase can just as aptly be applied to private investment, and notably to the core question that every family office faces: do you build an investment engine of your own, or do you hire others to run capital for you? 

To build or to buy. The families who get this wrong usually make the same mistake. They assume that because they have capital and ambition, they have the right to build an investment capability.

The families who get it right start somewhere less flattering: they accept that they cannot be great at everything. Then they decide honestly if they have the edge, the resources and the patience to be excellent at one or two things. Everything else, they outsource.

This honesty is harder than it sounds, and it rests on three things.

Before delving into the three aspects that shape whether a family office should buy or build, it’s worth zooming out. Whether a family office decides to buy or build, there will always be a need for an investment mind in a family office. Even if they outsource their entire investment management function, a family office must have the capability in-house to query, manage, control and audit the investments made by the family.

On top of this, this individual (or team) must orchestrate and rebalance the strategic asset plan of the family, manage the flow of information and reporting, and maintain the cross generational links that shape the families’ future.  

A further aspect worth framing is cost.

Literature shows us that an in-house capability can cost less than a fully outsourced model. But it says nothing about the quality of the in-house capability. One can skip over this debate by making the reasonable assumption that should a family office succeed in being world class in a certain asset class, a small difference in costs are a secondary consideration.

Being able to fund a strategy is not the same as being able to win at it. Direct real estate, venture, private credit, public equities: each is its own profession with its own competitors who do nothing else. The real question is whether the family office has a genuine edge in the arena they are entering, or whether they are simply well capitalized enough to sit at the table.

The point is not that a family office should be timid. It is that pretending their circle of competence is wider than it is will cost them more than admitting where it ends. If a family office has a real edge, a network, an operating history or a genuinely differentiated view, then building around it is sensible. If not, outsourcing is the correct answer.

A right to win is only theoretical until it can be funded properly. Greatness in any asset class requires a real team, real information, real infrastructure, and enough capital to be a serious counterparty. Half a team chasing a full ambition is the most expensive thing a family office can own.

David Swensen, who built one of the best in-house programs in the world at Yale, was blunt about how steep the climb is. He warned that "the efficiency of marketable security pricing poses formidable hurdles to investors pursuing active management strategies," and that most participants who try to beat the market end up losing to it by the cost of trying. 

He of all people had earned the right to make the case for building in-house, and even he framed it as a demanding, resource-intensive discipline rather than a birthright. The lesson for a family is not "don't build." It is "if you build, build to a standard that can actually win, or don't build at all."

Even a genuine edge and full resources will fail without time and a way of operating that protects it. Excellence at a certain asset class compounds slowly and rarely arrives on the schedule of an annual review. What sustains it is culture: a shared understanding of how decisions get made, how mistakes get discussed, and how the family behaves when a good strategy is having a bad year.

Seth Klarman argued that "the single greatest edge an investor can have is a long-term orientation." That edge is available to family offices in a way it is available to almost no one else. 

But that advantage is structural, not automatic. It only becomes real if the family builds the temperament and the governance to actually hold positions through discomfort. Without that culture, permanent capital quietly behaves like impatient capital, and the greatest edge that a family office owns gets thrown away.

Put the three together and the build-or-buy investment decision becomes a matter of self-knowledge. Having built capabilities and advised for a number of family offices, my admiration is not for the ones doing everything themselves, nor the ones who have handed it all away. It's for the ones who chose deliberately. They know exactly where their edge is, they have built the depth to defend it, and they have the patience to let it compound. 

That clarity, more than any single investment, is what tends to separate the family offices that endure from the ones that merely spend.

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Pieter Hundersmarck is a Chief Investment Officer and Portfolio Manager with almost 20 years experience building investment capabilities for asset managers and family offices from the ground up, including asset allocation, philosophy, process, people and investment operations end to end. He was most recently CIO at a single family office based in Amsterdam, and has led investment strategies across listed equity, fund of funds, private equity and impact investments.