Next Generation Education

Top 10 Signs you Need a Family Office

By Michael Harris and Matthew Moore

10. Want to leave a lasting impact on the world through philanthropy but aren’t sure how

9.  Lots of bills to pay and you constantly worry that one will slip through the cracks

8.  Would love an annual family meeting that’s both well organized and engaging, so it’s more likely everyone attends

7.  Concerned that the investment portfolio that got you here may not be the right one going forward

6.  Preparing to start a new business or sell an existing one and need an extra set of eyes on the transaction

5.  Coordinating all of your external advisors (Tax, Law, Insurance, etc.) has become a full-time job

4.  Getting ready to purchase another vacation property and need help acquiring, financing, and managing it

3.  Struggling with whether or not to fly private and the best way to do it

2.  Need to start talking to your children about your wealth but need help doing it

1. Your life has simply become too complicated and you need help

Verdence View on Bitcoin – video

5 Questions to Ask Yourself When Considering a Family Office

By Michael Harris, Director of Family Office

Whether you accumulated wealth over a lifetime of hard work or suddenly came into it via a business exit or inheritance, one of the most common questions within the ultra-high net worth space is what is a family office, and do I need one? A family office is an organization that assumes the day-to-day administration and management of a family’s personal and financial affairs. Though investment oversight is a significant component of their responsibilities, what differentiates them from traditional wealth management firms is all the additional services that they offer.  Having a family office allows the affluent to rely on a team of objective subject matter experts to oversee all the critical aspects of their lives so that they can focus on what really matters to them.

1) What services do we require?

  • Investment Management & Oversight
  • Manager Selection & Due Diligence
  • Alternative Investment Access
  • Aggregated Reporting
  • Bill Payment & Bookkeeping
  • Concierge & Lifestyle Services
  • Tax, Legal & Insurance Coordination
  • Family Governance & Education
  • Strategic Philanthropy Advice
  • Financial & Estate Planning

If you determine that you require more than 3 of the services on this list, chances are that a family office might be right for you. There may be services that you do not currently require but may need down the road.  Many families who are busy enjoying their wealth have not yet begun to think about estate planning, family governance, next-generation education, or strategic philanthropy but will probably need assistance in all these areas at some point during their life.  For this reason, it is important to evaluate a firm’s total platform and service offerings to make sure that they can handle both your existing needs as well as future ones.

2) Should we create our own Single-Family Office (SFO) or join a Multi-Family Office (MFO)?

Once you have decided that you need a family office, the next critical choice is whether you should form your own Single-Family Office (SFO) or join a Multi-Family Office (MFO). For most families, this decision comes down to your net-worth and the level of customization that you require.  Typically, a family with a net worth of $1 billion or more will choose to establish their own SFO, while those with between $25 million and $1 billion prefer to take advantage of the scale and shared cost structure of an MFO. Though it can be tempting to have an organization that exclusively looks after just your family’s needs, keep in mind that the cost of operating your own SFO can be deceiving.  By the time you factor in office space, technology, and several experienced professionals, it can easily be millions of dollars per year to support.  To keep costs down, many matriarchs and patriarchs serve as the head of their SFO.

3) What will it cost us?

A good rule of thumb is that a family should expect to pay about 1% of their assets per year to run their own family office. With a $10 million annual budget, a family worth $1 billion should have no problem setting up and running a high-end operation, where a $100 million family office would barely be able to afford one senior investment professional and office space with a $1 million. This is exactly why most families under $1 billion embrace joining a multi-family office as the cost savings associated with shared infrastructure, technology, and team, enables them to offer a larger team of domain experts at a price below 1% of assets per year.

4) Should we go with a large firm or a smaller boutique?

A popular industry joke is that if you have seen one ultra-high net worth family, you have seen one ultra-high net worth family. From the way each family amassed their wealth to the industry where they were successful to the way they spend money to the charitable causes they support; each family is truly unique and will require different services and support. There is a direct relationship between how custom an offering is and how much it will cost you.  As mentioned before, a single-family office will be 100% dedicated to its sole family but the costs, both monetary and your time, can be very high.  On the other end of the spectrum are family office services provided by large investment and trust banks.  Due to the sheer size and scale of their organization, they can offer these services at a low price, but this assumes that the client fits into their existing model with little customization.  For this reason, many clients choose to partner with a boutique MFO that can offer bespoke services at a competitive price.

5) How should we evaluate a Multi-Family Office (MFO)?  Questions you should ask:

  • Compensation
    – How are you compensated?
    – Are you paid strictly for your advice or do you also get paid to sell products and/or accept soft dollar arrangements?
    – Are you bound by a fiduciary standard or are there conflicts of interest I should know about?
  • Expertise
    – Can you tell me about your team?
    – What are their backgrounds and specific areas of domain expertise?
    – Who will we be working with on a day-to-day basis?
  • Firm History
    – What is the history of your firm?
    – What is your ownership structure?
    – Can we please get a copy of your latest ADV?
    – Have you ever had any issues with the regulators?
  • Clients
    – Can you please tell me what your other clients look like when it comes to net worth?
    – What industry backgrounds do they have?
    – Where are they based from a geographic standpoint?
  • Privacy
    – How do I know that my information will remain private and confidential?
    – Can you walk me through your security protocols from a physical and cyber perspective?

If done correctly, a family office can enable you to truly enjoy the benefits that your wealth brings. In addition to conducting thorough due diligence on several potential firms, make sure you also enjoy working with them as you will be in constant contact with them. From adding new family members via marriage or birth to contemplating a new investment or business opportunity to considering a major purchase or charitable gift, your family office should always be your first call.

The Most Frequent Questions Wealthy Family Ask

By Michael Harris, Director of Family Office
  1. Should I create my own Single Family Office (SFO) or join a Multi-Family Office (MFO)?
  2. In our quest to be intelligent investors, what return expectations should we target, and what mix of traditional and alternative assets will help us achieve it?
  3. As we think about robust financial planning, how much can we spend and/or gift to charity in our lifetime?
  4. How much do we leave to our children and grandchildren?  What are the optimal tax and timing strategies?  When do we start educating them on financial literacy?
  5. What are the limitations and opportunities for effective estate planning?  What changes should I expect over time?
  6. Across health, cyber, personal safety, and portfolios, what are the hidden risks can that can negatively impact our family?
  7. From passing values down to the next generation to having an impact through philanthropy, what will our family’s legacy be?
  8. What’s the difference between tactical charitable giving and strategic philanthropy?  Should my impact be expressed through the way we invest or should investments be cause-neutral and maximized to increase the size of the gift?  How and when do I involve the next generation in philanthropy?
  9. What do we need to take into account when considering private aviation?  Should we buy a jet to put into a charter management pool,  buy a fractional interest in a firm like NetJets, or use a private charter or shared ride service like WheelsUp?
  10. What is good Family Governance?  Should we establish a family council for leadership purposes, do we need to draft a family charter, and how often should we gather as a family?  How do we handle family communication and conflict resolution?

Understanding Private Markets

By Megan Horneman, Director of Portfolio Strategy

What are the private markets? What are the different types of private investments? How do private markets differ from public markets? What is the importance of due diligence?

The private market includes a variety of alternative investments such as private equity, private credit, and/or private real assets. The private markets differ as they are not listed on a publicly-traded exchange. The private market has grown almost three-fold over the past decade and globally, stood at $6.5 trillion at the end of 2019.(1) The demonstrable growth of the private markets can be attributed to many factors including the absence of regulatory burdens in the private markets, the massive liquidity that was created by nontraditional monetary policy over the past decade, the lack of daily volatility swings, and the extremely profitable IPOs of companies that were backed by private equity (e.g. Facebook, Alibaba, Salesforce). In fact, the number of private companies grew ~9% per year (from 2000-2018) while the number of publicly traded companies declined by more than 2% per year over the same period.

Some commonly known private market investments:

  1. Private equity – The most commonly known portion of the private market is private equity. While select investors may invest directly into a private company, most investors gain access to private equity through a well-seasoned private equity fund and/or separately managed account. Typically, the fund is run by a general partner (GP) who gathers capital from investors and these investors become limited partners (LP). Examples of well-known private equity strategies include:
    — Buyout funds typically utilize leverage to obtain enough capital to acquire a controlling stake in a company. These companies are typically mature companies and the goal is to restructure the companies to become more profitable.
    — Venture capital funds invest small amounts in startup companies with the hopes of making outsized returns when the company matures. The funds typically carry more risk than other private equity funds. Most venture capital funds are either early stage where they are taking a bet on future growth (most of the time betting on an idea or intellectual property) or late-stage venture capital that may have the infrastructure in place but need help maximizing their earnings stream.
    — Growth funds typically invest in more mature companies than venture funds and carry less risk but a lower return profile as well. Typically, the companies they invest in are looking for expertise to make the business more profitable to potentially spin-off and/or look for merger candidates.(2)
  2. Private credit – Private credit funds have grown substantially over the past two decades. One of the major contributors to growth in this space is that investors are desperate for income as yields in the public bond market remain near record lows. Private credit funds typically offer attractive yields as they lend to smaller companies that may be unable to access the public funding market at affordable rates. There are many areas within a company’s credit structure that private credit funds invest in and the level of return is highly dependent on the amount of risk associated with the debt in the fund. Some common private credit funds include:
    — Mezzanine and senior debt funds typically make loans to lower and middle-market borrowers as either senior or subordinate loans. The structure of the loans varies as senior loans may sit higher in the payout structure in the event of default while subordinated debt sits a bit lower (but still before equity ownership).
    — Distressed credit funds are funds that invest in the debt of distressed companies. They look for discrepancies between how the debt is pricing and compare it to the ultimate recovery rate in the event of default and/or the underlying value of the loans in the event of restructuring the company’s debt. This type of private credit can be highly speculative and dependent on expertise in bankruptcy laws and legal corporate structures.(3) These funds carry more risk than mezzanine or senior debt funds but also can offer a better return potential.
  3. Real assets – Real asset funds access a variety of investments that carry the characteristic of having a tangible value. An investment is considered to have tangible value because there is something physical that backs it up. In addition, because it has a tangible value it is also expected to keep pace with inflation and some investors utilize it for a long-term inflation hedge. Some of the common types of real asset funds include:
    — Real estate funds are private funds that can invest in a pool of real estate offerings or into a direct real estate structure. Real estate funds vary across investments in office space, apartment buildings, warehouses and shopping malls. As with most private investments these represent long-term investments with capital locked up for different periods of time depending on the project. Investors are drawn to private real estate for its steady cash flow and historically negative correlation to publicly traded real estate investment trusts.
    — Infrastructure funds are private funds that may participate in a public-private partnership to spur infrastructure. The need for infrastructure is a global phenomenon. It is estimated that the world needs $3.6 trillion in annual spending for infrastructure. Given the limitation of government budgets to fill this void, there is always the need for public/private partnerships.(4) These types of funds may offer both capital appreciation as well as steady income.
    — Natural resource funds invest in companies that focus on the extraction, drilling, production and or refining of commodities, chemicals and/or timber. Since these funds invest in the physical commodity, chemical, etc. they are considered another way to hedge against inflation. These funds are long-term investments and carry risk as they are heavily correlated to the economic outlook.


How do the Private Markets Differ from the Public Markets?
There are advantages to investing in both the public and the private markets, especially for a well-diversified portfolio. Some differences investors should be aware of include.

  • Barrier of entry: With the development of mobile apps and the increasing number of online brokers, the ability to invest in publicly traded stocks is open to nearly all Americans regardless of their knowledge or individual financial situation. However, in order to access the private markets, you must be classified as an accredited investor (e.g. high net worth individual).
  • Reduced regulatory burden: Private companies are not constrained with regulatory hurdles and scrutiny like public companies. Regulatory filings, registrations, annual reports, and highly reviewed earnings reports are some of the items that cost money for public companies but not for private companies. A public company is sold to the public, so it is forced to accept more regulations. However, a private investment is typically sold to a smaller pool of accredited investors, and not required to adhere to the same regulatory environment.
  • Daily volatility swings absent in private markets: Public equity markets have always been subject to daily price swings. However, in recent years these daily volatility swings have been exacerbated by algorithmic trading. Since private companies are not listed, investors do not have to see daily price swings or accept massive changes on frequent investment statements.
  • Liquidity differences: Investments in the public market offer daily liquidity for investors that need to sell or want to buy. However, private investors are forgoing daily liquidity and willing to lock up their money for prolonged periods of time in exchange for the potential of a better risk-adjusted return.

Due Diligence is Crucial in Private Markets

The information to value a private company is not as readily available as it is for a public company that is forced to disclose financials, so the due diligence process is more complex and even more important in the private markets than in the public markets. The efficient market hypothesis states that a publicly-traded company should reflect all available public information. It should be a fair playing field for all investors because anyone can obtain the same public information. However, that is not the case in the private markets. It takes deeper due diligence and market analysis to determine the appropriate value of the private investment and the price a buyer may be willing to pay for it in the future. An example of the importance of due diligence is evident in the dispersion between returns in the public market and compare it to the private market. Over the past 10 years those investors that invest in a publicly-traded equity manager saw a very narrow dispersion in the returns (10.3% for best managers and 7.8% for worst managers). This is because all managers had the same information. However, you can see the dispersion in returns between the best managers in the private equity space (20.1%) compared to the lowest quintile managers (1.9%).

Private Investments can add to a Well Diversified Portfolio with Less Volatility

Volatility in public equity markets is typical and should be expected by investors throughout any long-term investment cycle. However, the violent daily swings that investors have had to absorb this year brought back memories of the Great Recession. In addition, a traditional portfolio of stocks and bonds has not recently been offering the same diversification benefits as it may have historically offered. This is because the Federal Reserve has been a more prominent player in the public bond markets resulting in bonds not pricing in underlying fundamentals, instead, prices are manipulated by the Fed purchases. In addition, artificially low interest rates result in excess risk-taking and may drive equity prices higher than fundamentals warrant. Therefore, it is important for investors to look at alternative ways to add diversification to their portfolios. The private markets not only offer the potential for attractive long-term returns and diversification benefits but also less volatility for investors to absorb.

The Bottom Line

Taking advantage of the private markets through a less liquid investment can provide investors with the ability to generate excess returns over time and eliminate the stress of daily price movements of a public security that may have no fundamental impact on the actual value of the business. In an environment where finding value in the public equity and bond markets is starting to entail taking on more risk, the private markets look even more attractive. In addition, the demand for good quality private investments has had investors chasing too few deals in recent years. This can be seen by private equity funds coming into 2020 with $1.5 trillion of “dry powder” or money that can be deployed.(5) However, the market conditions and dislocations over recent months have resulted in attractive opportunities for that massive amount of money to be deployed and history suggests that private investments can outperform public investments at the turn of an economic cycle. While every client’s financial situation and investing goals may vary, the ability for a wide array of investors to access the private markets through different structures is growing. Therefore, we will continue to look for attractive private investments that offer our clients the opportunity for a good risk-adjusted return, can enhance income opportunities, and offer attractive diversification benefits.

As always, if you have any questions about our perspective, please do not hesitate to reach out to your advisor.

  1. Mckinsey Global Private Markets Review 2020 – A New Decade for Private Markets. McKinsey and Company, February 2020. Three times estimate comes from the Mckinsey report and is as of 2010.
  2. Private Equity Interviews: The Official Guide. Published by Andrew Chen.
  3. Private Credit Strategies: An Introduction. Cambridge Associates. September 2017.
  4. Mckinsey Global Institute, JPMorgan Asset Management, Data as of May 31, 2020.
  5. Private equity has $1.5 trillion of unused funds and is looking to raise more. Fortune magazine. January 2020.


Download a PDF version of this white paper here

Verdence View on Bitcoin

By Megan Horneman, Director of Portfolio Strategy

Since Bitcoin was founded in 2009, the price has skyrocketed from basically zero to nearly $60,000. Its market cap has exceeded $1 trillion which is more than the market cap of Facebook. After an initial surge in 2017, the price of Bitcoin was relatively stable until the pandemic brought renewed interest in the cryptocurrency world. Below we will offer reasons why we believe the cryptocurrency has skyrocketed since the pandemic, the risks associated with investing in Bitcoin, and our recommendation on investing in this highly volatile investment.

Five Factors Causing the Renewed Interest in Bitcoin:

  1. Decline in USD and currency use: Not only has the pandemic resulted in the decline in the use of paper money to transact but the actions taken—massive fiscal and monetary stimulus—to prevent a global depression pressured some fiat currencies, specifically the dollar. The USD has lost 11% of its value since its March 2020 high and speculators believe that digital currencies can take over the USD as the world reserve currency.
  2. Increasing acceptance: Companies such as Paypal, Square, and Venmo have started to allow customers to buy and sell bitcoin. Microsoft allows the use of bitcoin on its online gaming system. Fidelity digital allows its institutional customers to use bitcoin as collateral against loans. Sporting teams like the Dallas Mavericks have also adopted the cryptocurrency as a form of payment. Lastly, while once rejected, there has been increasing interest from institutional accounts and hedge funds.
  3. Negative real yields: Typically, investors would turn to precious metals to escape a negative real yield environment and hedge against the potential of inflation. However, there has been a clear connection between the recent decline in gold and the contrasting rise in bitcoin which suggests investors are turning to bitcoin as a precious metal substitute in times of negative real yields and rising inflation risks.
  4. Fear of missing out: Bitcoin’s rapid surge has left investors emotional and fighting the long-standing investment mistake by falling into the fear of missing out. Since there is a limitation in the amount of bitcoin that is available to be “mined,” investors are panicking that they will miss out on investing which is only driving the price to bubble-like levels.
  5. Retail investor surge: With the massive amount of fiscal stimulus being distributed, the world on lockdown for most of the last year and many out of work, we have seen a massive increase in the amount of retail, online brokerage accounts being opened. Robinhood, a well-known mobile trading app saw over 3 million accounts opened in the month of January alone. These investors tend to be short term traders, can tend to chase momentum, and lack the long-term investment discipline that is key to success. Bitcoin is and has been a prime target for these types of investors.

Understanding the Risks Behind Investing in Bitcoin.

  • Bitcoin has no store of value so cannot be considered a fiat currency. Bitcoin is not a store of value. It is too volatile, is not backed by a government entity, not regulated, not insured and as of now cannot be stored at central banks. Since it is not backed by any government or physical asset Bitcoin’s value is purely from speculation. To be considered a currency or supplant the U.S. dollar, the Euro, or the Yen, a currency must hold value in all types of stress and turmoil. It is hard to say that the daily swings Bitcoin has experienced since inception satisfies this standard.
  • Commonplace for illegal activities, theft, and hackers: Since Bitcoin lacks regulation and transparency, it is known to be a place for criminals, drug traffickers and even suspect countries (North Korea) to transact illegal activities. In addition, cryptocurrency storage is flawed and subject to hackers and theft. It is estimated that hackers were able to steal over $6 billion in cryptocurrencies in 2019 and 2020 alone.(1)
  • Bitcoin highly volatile; regulation could make it worse: Bitcoin is a highly volatile product with no way to fundamentally value it. Over just the past four years, Bitcoin has seen two drops of more than 60% and two additional bear markets (a drop of 20% or more). A product that has no fundamental value, is purely speculative, has little to no correlation to traditional asset classes and carries immense volatility has no place in a long-term investment portfolio. In addition, given the “bubble-like” characteristics and non-transparent transactions, regulators often take notice. While the new Administration has not taken a firm stance on Bitcoin, President Biden’s pick for Treasury Secretary, Janet Yellen, has vocally been a critic of the “highly speculative asset.”
  • Bitcoin ownership concentrated: Only 2% of the crypto accounts, considered “Bitcoin whales” control 95% of the digital currency.(2) A well-diversified investor would never own a fund or investment manager that carries that much concentration risk. If one of these “Bitcoin whales” opted to unwind their holdings, this could cause significant instability in an already highly illiquid investment.

Verdence View on Bitcoin

In our view, Bitcoin is a concept that uses the complexities of algorithmic math, some technological quantitative mathematicians, and the growing use of the internet as a way of transacting daily life (e.g. PayPal, web banking, etc). However, Bitcoin has no fundamental store of value which is necessary to be considered a currency or commodity, and is extremely volatile. With no earnings, no tangible product, and no valuation, Bitcoin is simply an experiment that is testing the appetite of individuals for an advanced technological payment system. As with any speculative asset moving at the speed that Bitcoin has experienced in recent years, it is impossible to determine how high the asset can go as more and more speculators enter the market. In historical “bubble” scenarios, the asset ascends far beyond any possible expectation and ultimately crashes further than any possible explanation. As a result, we would not recommend the product.

While Bitcoin itself may exhibit “bubble-like” characteristics, it does not necessarily mean the technology behind the way Bitcoin virtually transfers money (i.e. blockchain) does not have value. The blockchain technology anonymously secures the holders of their “currency” and trades it amongst users. This could have immense value and many technology companies are moving to develop this technology for uses in business and finance. As a result, Bitcoin may not even exist in its current form in the future as more and more companies use the underlying concept (i.e. blockchain) to enhance their own businesses. We will continue to assess the development of the entire cryptocurrency market, more specifically the blockchain technology, but at this time would be hesitant to recommend entering this space.



1. as of February 17, 2021.
2., “Bitcoin’s Volatility Resumes After $40,000 Topped for First Time.” As of January 7, 2021.

Understanding Private Markets

When Do I Tell My Children?

Will Wealth Change My Family?