A family office in finance refers to a private investment company that manages the funds of an individual or a small group of individuals. In most cases, these offices are managed by former hedge fund managers or prominent advisors. Some of the biggest family offices in the world are those run by George Soros, Stanley Druckenmiller, John Poulson, and Paul Tudor Jones.
Family offices became popularized in early 2021 when Archegos Fund Management underwent. The highly leveraged fund lost billions of dollars when its prime brokers like Nomura and Credit Suisse implemented a margin call.
Family offices have been growing.
At a smaller scale, many day traders essentially run their operations as essentially family offices. In this article, we will explain some of the steps you should follow to run a successful family office from scratch.
A strategy
As mentioned above, the biggest family offices in the world are started by former hedge fund managers, chief investment managers, and senior managers in funds or banks. These people typically use their savings, funds in their personal balance sheets, and seed capital from their fund to start their offices.
Notably, their goal is usually to implement their former successful strategies in their new family offices. Therefore, an investor who was successful in arbitrage trading will continue with the strategy in his family office. Similarly, an investor focusing on growth stocks will use the strategy when running their family offices.
Therefore, these investors start their family offices with their time-tested strategies. As such, as you start your office, you need to have years of experience in the financial industry. Preferably, you should have some experience working in a leading company like a hedge fund or investment bank like Goldman Sachs or Morgan Stanley.
Some of the popular forex trading strategies you can focus on in your family office are:
- Algorithmic or robo trading. This is a strategy where you develop sophisticated algorithms or robots that identify and implement opportunities.
- Trend following. This is a strategy or approach that involves waiting for a bullish or bearish trend to form and then move with it.
- Scalping. It involves buying and selling currency pairs within minutes. The goal is to open tens of trades per day and make small profits per trade.
- Swing trading. This is a strategy where you buy and hold currency pairs for several days. The idea is to take advantage of key swings in the market.
Registering a family office
After coming up with a time-tested strategy, you need to register your family office with the SEC. This only applies to those family offices with more than $150 million of assets under management. To qualify as a family office, your fund will need to meet several qualities.
First, it should not have external clients like institutions and individual clients. Your clients can be immediate or extended family members and companies or trusts owned by the family. Second, the family office should be owned by you or the family members. Third, you should not promote the family office to public investors.
If you meet these qualifications, you should use a law firm or an expert in company registrations to expedite the registration with the Securities and Exchange Commission (SEC).
However, if you are starting a small family office with less than $150 million, it is not mandatory to register it. Still, if you intend to raise money from family and friends, having a lawyer will help you come up with the terms and conditions. It will also help you come up with documents that will protect you in case you suffer losses. Also, you should consult with a tax expert who will guide you on how to report your taxes.
Equipping your family office
An advantage of setting up a family office is that they don’t require a lot of startup capital to start. Indeed, many people have started their small offices with just a smartphone and high-speed internet. Also, you don’t need to lease an office block for the office. Instead, you can use a spare room like a garage or the extra room in your house to use as the office. Doing this will save you a substantial amount of money.
Ideally, you need several things to run a successful forex trading home office. First, you need to have a good and fast computer. We recommend using a computer with the latest processor. Also, you should invest in more than one computer monitor to simplify your trading process.
Second, you should invest in a good virtual private server (VPS). A VPS is a product that helps you access data faster than the default. It runs for 24 hours and makes you access data faster than the default platforms. Also, invest in a good internet connection, preferably with at least two providers.
Third, you should invest in quality office furniture to make your trading comfortable. This means investing in quality desks and chairs if you are hiring more traders.
Finally, invest in at least two television sets to help you get the latest news. The sets will help you get connected to popular financial platforms like Bloomberg and CNBC.
Final thoughts
A family office refers to a company that invests funds specifically for family members. Most of them are typically run by former hedge fund managers and senior investment officers from leading institutions, like Morgan Stanley and Goldman Sachs. In this article, we have looked at what a family office is and how you can register it and run it successfully. We have also looked at the items you need to start and run the office.
