The term family office has been abused of late.

Everybody wants one. Or pretends to be one to connect with others.

But for legitimately wealth families that pursue their own single family office, things don’t always go to plan.

This week we spoke to a member of a family that decided to wind down their $300 million office, to understand the reasons behind the decision.

Unsurprisingly, the biggest factor was poor investment performance.

“The family office had become an expensive operation, with highly paid family members, lavish offices, and significant overhead, but the returns simply weren’t there.”

“Operating costs were excessive, but I wouldn’t exaggerate their impact. It wasn’t the expensive offices or salaries that destroyed the AUM. It was poor investment decisions.”

He then elaborated with a point we have heard before, from both family office principals and CIOs.

“I think our family’s success in operating businesses created a false sense of confidence in direct investing.”

“There was an assumption that because we knew how to run successful businesses, we could replicate that success in private equity. Unfortunately, several large investments, including complicated turnarounds, went terribly wrong.”

This realization is poignant during a period where family offices are increasingly turning to alternative assets to find returns. 

“The family office became more focused on looking like a sophisticated investment institution than actually delivering returns.”

Is the need to institutionalize potentially creating unnecessary pressure on investment policy?  

“To be honest, walking away wasn’t particularly difficult. We had sufficient wealth and other sources of income, so there was no reason to create unnecessary family conflict.”

This was informed by his own exposure to wealthy family members fight over money despite both sides already having more than enough. 

“At some point, you have to ask yourself whether the additional wealth is really worth damaging family relationships. If you can afford to walk away, sometimes that’s the best investment you can make in your peace of mind.”

While governance can look excellent on paper, in reality things can function quite differently.

“We had independent board members, an independent investment committee, and all the formal structures you’d expect. But in practice, family members could still influence decisions regardless of those structures.”

Then there were the expensive operating costs.

“I think the most common areas of waste are overpriced advisers, overcompensated employees, lavish offices, and unnecessary international offices.”

But he wouldn’t obsess over costs at the expense of investment performance. 

“A cheap family office making terrible investments is not necessarily better than an expensive one delivering strong results.

The biggest problem was poor capital allocation: “Several large-ticket direct investments destroyed substantial wealth over the years.”

While he wasn’t involved in every investment decision, he pointed out several large direct investments that performed very poorly. 

“One involved acquiring a significant stake in a business where the financial performance presented at acquisition, from my understanding, turned out to be substantially overstated. Another was a large real estate investment in Europe, a market where we had limited expertise.”

The biggest lesson was knowing when to move on. 

“The family office spent years trying to turn around failed investments, consuming management time, attention, and potentially additional capital. Investors sometimes become emotionally attached to their mistakes. They convince themselves that they can eventually fix everything.”

You don’t have to recover your losses from the same investment that caused them. Sometimes it’s better to accept the loss and move on.”

He still wanted to answer a fundamental question: can they actually deliver more value than simply giving the capital to a reputable private bank? 

“Private banks have their fees, including hidden ones, but that doesn’t automatically mean an internally managed family office is more competitive.”

So rather than dismiss the family office concept, he turned the lessons from the previous failure into building a new, improved version.

“I deliberately kept it lean: a small investment team, limited staff, external advisers, independent investment committee members, and a modest office. My philosophy was to prove that the family office creates value before spending money building an institution around it.”

The new investment approach is also completely different. 

“We focus on traditional asset allocation across public equities, fixed income, and funds, with an emphasis on selecting excellent external managers rather than pursuing large direct deals.”

They brought in strong investment expertise, particularly in manager selection, and rather than chasing the next big name, chose exposure to long-term growth themes, including AI, but through a disciplined portfolio.

“Our objective is simple: responsibly compound family wealth over the long term.”

Family dynamics can complicate decisions like closing a family office, but he notes that if it isn’t delivering value, a family shouldn’t hesitate to close it. 

But first, they should define what value means to them.

“Some family offices are primarily investment vehicles, while others provide concierge, lifestyle, and administrative services. There’s nothing wrong with either model. Success is subjective.

In our case, we weren’t receiving meaningful concierge services, and investment performance was poor, so there was little reason to maintain the structure.”

This is more relevant than ever, with modern wealth technology platforms, fractional CIOs and all manner of outsourced solutions now available.

But before considering these, the first decision is a simple one: if you really need to operate your own family office. 

“The biggest mistake is assuming that having a family office is automatically better than not having one. A family office is a tool, not an achievement in itself.”

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