Fake Family Offices
Beware of Fake Family Offices in the Alternative Investment Space
In the world of alternative investments, the term “family office” is often misunderstood and frequently misused by wannabe brokers, inexperienced founders, and business owners with limited access to the real family office network. While not every family office you come across is a scam, many interactions with these so-called “family offices” will likely be a waste of time.
Understanding Family Offices
A family office is a wealth management entity that serves one or more ultra-wealthy families. There are two primary types:
Single Family Offices (SFOs): Dedicated to managing the wealth and investments of a single family.
Multi-Family Offices (MFOs): Serve multiple families, pooling resources to manage wealth collectively.
Alternative Investments in Family Offices
Family offices often allocate a significant portion of their portfolios to alternative investments, such as private equity, venture capital, and real estate, to diversify and enhance returns. According to a survey by KKR, family offices plan to increase their allocations to alternative investments, especially private equity and credit, in 2024. Source: Institutional Investor
The average family office portfolio allocation to alternative assets is approximately 45%, with private equity representing about 30% of the average family office portfolio last year.
The Realities of the Alternative Investment Industry
The alternative investment space—especially in sectors like real estate, venture capital, and private equity—comes with its own set of risks. Because family offices aim to protect wealth while growing it, they typically focus on a smaller number of large investments rather than spreading their portfolio across many. This means that family offices often don’t make quick or small bets in the market—they take their time to evaluate opportunities and typically invest only when they can have significant control or influence.
Who Are the Fake Family Offices?
Unfortunately, the term "family office" has become a buzzword that is often misused by individuals looking to capitalize on the reputation of genuine family offices. These include:
1. Unsophisticated Investors: These are wealthy individuals who may want to make direct investments but lack the expertise or network to do so effectively. These investors, often referred to as “direct ultra-wealthy investors,” are not scammers, but their approach is more of a “spray and pray” method, investing in various asset classes without proper strategy or support. They typically lack the connections and knowledge to make informed investment decisions and may get taken advantage of by unscrupulous capital raisers.
2. Fake Managers or Brokers: Some self-proclaimed family office “managers” are simply brokers acting as intermediaries. They may hold a broker-dealer license but often lack the backing of a real family office. These individuals frequently waste your time as they do not play a real role in the investment ecosystem. Real family offices typically avoid interacting with these types of managers. Example: Brian DeLucia, Arrivato, Single Family Office Manager and Member, Pennsylvania. He builds teams of naive and uneducated bird dogs and tries to get due diligence fees from companies and managers to pay for small gatherings or meals.
3. Overseas “Family Offices”: Some overseas entities claim to be family offices and charge fees for introductions or investments. These operations are usually red flags and should be avoided. The majority of legitimate family offices are cautious when dealing with foreign entities and prefer to work within established networks. Example: Anthony Ritossa is Chairman of the Ritossa Family Office, Dubai. He scammed thousands with flagship events.
Spotting a Fake Family Office
It can be hard to distinguish between a genuine family office and a fake one, but there are some key questions you can ask to help identify who you’re dealing with:
- What is the size of their liquid and discretionary assets?
- What are their investment criteria specific to your asset class (startups, businesses, uncorrelated assets, real estate, etc)?
- What is their portfolio diversification strategy?
- What are their holding periods and exit strategies?
- Who are their partners in investments?
A legitimate family office will be able to clearly (!!!) answer these questions with specific, detailed information. If the responses are vague or the family office hesitates, it’s likely you’re dealing with a less sophisticated investor, a broker, or even a scammer.
The Bottom Line
It’s great to connect with people in the investment world, but it’s important to be a little cautious when someone claims to represent a family office. To make the most of your interactions, take the time to look at the size of their assets, their investment strategies, and their track records. This way, you can get a clear picture of the alternative investment landscape and focus your energy on the right connections.
Always trust your instincts and do your homework! It’s good to know that some individuals may just be intermediaries without the real investment influence you’re looking for. By keeping this in mind, you can avoid time-wasting situations and build friendly, lasting relationships with genuine family offices and investors who can really make a difference in your journey!
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