Key Duties That Families Require of Family Office Executives
See Annex A for a more detailed description of the items listed above.
Need to Align Qualitative and Quantitative Functions Within the Family Office
Non-Financial Goals That Families Should Consider in Gauging Whether Their Family Office is Being Successfully Managed
Methods of Compensation Utilized by Families to Align Their Short and Long-Term Goals and Values With the Performance of Family Office Executives
Recent Trends and Best Practices in the Marketplace for Compensation of Family Office Executives
Structuring Family Office Co-Investment Vehicles to Permit Friends to Co-Invest in Deals Without Jeopardizing the Family Office Exclusion From Registration
See Annex B for Case Study.
Investment Strategy and Implementation
Accounting, Reporting and Control
Banking and Liquidity Planning
Legal, Governance and Estate Planning
Risk Management/Liability Management
Education, Family Continuity; Mission Statements; Family Charters
Integrated Financial Planning
Case Study: Single Family Office Co-Investment Partnership
Background: Day Pitney is currently working with a single family office client now who has made a fairly significant direct investment in cryptocurrency/digital assets and wants to have two close friends that are knowledgeable about the crypto space (and who brought the investment to the family), but are not “family clients” (i.e., neither family nor key employees), participate in the investment along with the family. The client wanted to ensure that doing so did not violate the family office rule that requires that the family office only advise “family clients.”
“Family Office Rule” Analysis: In this particular situation, the family office was neither recommending this investment to the non-family client investors nor charging them any fees (in part because they brought the deal to the family but also due to a long and close relationship). Since the family office was not charging any fees (including no promote or profit split) and was not recommending the investment to the non-family clients, having them participate along with the family together in a single investment vehicle should not be deemed to violate the family office rule.
Investment Structure: We structured a Delaware LLC and had separate classes of units for the family members, key employees and the non-family clients. The family gave the non-family clients a “profits interest” in the LLC in recognition of the value provided by bringing the investment opportunity to the family. The profits interest is tax-efficient for the recipient and was subject to a vesting period. The profits interest was in addition to the capital interests issued to all members, including the non-family clients for each member’s respective cash capital contributions. Governance of the investment vehicle was ultimately controlled by the family office.
Loans to Key Employees: The family office provided a loan to two key members that matched the amount of cash put up by the key employees (CIO and COO) to boost the amount of their investment. The loans were at 3% interest (interest and principal to be deferred until maturity) and were secured by half of the equity purchased in the LLC (i.e., the amount of the interest purchased with the loan proceeds). The loan balance was required to be paid down with any distributions from the LLC.
Tracking Partnership: We also are working with the client to establish a tracking partnership to create flexibility for family clients and key employees to co-invest together in a single investment vehicle. A tracking partnership allows the partnership to separate its assets into classes or pools, enabling partners to participate in each asset class to varying degrees. For example, a tracking partnership may hold securities (Class A), commodities (Class B), and alternative investments (Class C). Some partners may want heavy exposure to Class C, while others are more risk averse. A tracking partnership allows each partner to have a fixed partnership “percentage interest” while holding varying percentages of each asset class. The partnership is treated as a single entity from both a state law and a federal tax perspective. The tracking partnership allows families to then decide how they want to allow key employees and/or family members to participate in some or all of the investments made by the tracking partnership and to vary the sharing ratios of each depending on a variety of factors (e.g., origination, finding co-investors, lenders and exit partners).
This communication is provided for educational and informational purposes only and is not intended and should not be construed as legal advice. This communication may be deemed advertising under applicable state laws. Prior results do not guarantee a similar outcome.
On November 14, Dina Kapur Sanna will be speaking on two panels at International Trust and Estate Planning 2019, a program and live video webcast presented by American Law Institute Continuing Legal Education (ALI CLE) and held in Washington, D.C.
Day Pitney LLP, together with PDB FutureCom International, hosted an invitation-only Healthtech Investor Forum for family offices and high net worth individuals interested in healthtech investing at the Boca Beach Club in Boca Raton, FL.
Carl Merino, Dina Kapur Sanna and Seth Mersky co-authored an article, Attribution After the TCJA: A Downward Spiral of Unintended Consequences, published by Trusts and Estates.
On October 18, Steven Cash will be speaking on a panel, "Becoming A Risk-Oriented Advisor," at the 2019 Family Wealth Alliance Fall Forum in Chicago, IL.
On October 15, Von Sanborn will co-chair three panels and Art Requenez will speak at Private Wealth Management LATAM, an executive education program presented by The Wharton School of the University of Pennsylvania in partnership with its Family Business and Office School and held in Miami, FL.
Manuel Garcia-Linares is quoted in an article, "Start Early, Keep it Local, and Keep it Customized: Wealth Management in the Gables," published in the October 2019 issue of Coral Gables Magazine.
Warren Whitaker is noted in a September 19 special section of The New York Times, "How Do You Fix … All of It?" The special section focuses on findings from the inaugural New York Times DealBook DC Strategy Forum, at which Whitaker participated in a task force discussion on the best way to tax the wealthy in the U.S.
Day Pitney Press Release
Day Pitney LLP and Boca Raton associate A. Michael Wargon are featured in a profile, "Deep Roots. More Talent.," published in the September 2019 issue of The Boca Raton Observer magazine.
Day Pitney LLP is pleased to announce that the firm and 16 attorneys in its Individual Clients department have been ranked in the 2019 Chambers High Net Worth (HNW) Guide*, a Chambers and Partners publication specifically aimed at the international private wealth market.