A single-family office is described as viable “above a substantial threshold”.
That adjective is the most consequential word in the chapter for a family deciding what to build, and it
has a number. On the schedules below the number is $566.8m.
The reason a threshold exists at all is that one of the two costs is fixed and the other is not. A
staffed office costs what it costs. A multi-family office charges a percentage. One curve plunges as
wealth grows, the other merely sags, and they meet exactly once.
What the office costs
Five people is the smallest complement that covers investment, operations, analysis, control and
administration without asking anyone to do two jobs. Salaries alone understate the cost badly: employer
costs and a bonus pool add 55% on top before a single premise is rented.
The office
$ per year
Chief investment officer
$450,000
Chief operating officer
$300,000
Investment analyst
$160,000
Controller
$140,000
Administrator
$90,000
Salaries
$1,140,000
Employer costs and benefits, at 25%
$285,000
Discretionary bonus pool, at 30%
$342,000
People
$1,767,000
Premises
$120,000
Technology and reporting platform
$145,000
Audit, tax and legal
$190,000
Custody and banking
$85,000
Insurance, including directors' cover
$55,000
Travel, research, memberships
$80,000
Running the office
$675,000
Total, every year
$2,442,000
Five people, before anyone has made an investment. The figure does not move with assets.
Note what this figure does not do: it does not move with assets. The same
$2,442,000 oversees $100.0m or $2,000.0m. That is the whole of the argument.
The same cost, in basis points
Against a tiered multi-family schedule — the realistic alternative, not a straw man —
the two curves look like this.
Multi-family office schedule
Rate
On the first $100m
65 bps
On the next $150m
50 bps
On the next $250m
35 bps
Above $500m
25 bps
Assets overseen
$100m
$250m
$500m
$750m
$1000m
$2000m
Single-family office (bps)
244.2
97.7
48.8
32.6
24.4
12.2
Multi-family office (bps)
65.0
56.0
45.5
38.7
35.2
30.1
Difference (bps)
+179.2
+41.7
+3.3
-6.1
-10.8
-17.9
Positive means the multi-family office is cheaper. The sign changes exactly once.
The office falls from 244 basis points to 12.
The multi-family office falls too, but only from 65 to
30. One plunges, the other sags.
Solving for the crossover
Above $500.0m the multi-family fee grows at the top-tier rate of
25 basis points, so the crossover has a closed form: take the difference between
the office's cost and the multi-family fee at $500.0m, and divide by that rate.
The office costs $2,442,000. The multi-family fee at $500.0m is $2,275,000. The gap is
$167,000, and at 25 basis points that gap is closed by another
$66.8m of wealth. The crossover is $566.8m, where both cost about
$2,442,000 a year, or 43 basis points.
The framing that actually helps
Almost no family picks the cheaper option and stops thinking. The useful question is not which costs
less but how much better must the office perform, net, to be worth its extra expense. That is a
hurdle, and it is a number.
Assets
Office
Multi-family
Extra cost of going alone
Hurdle
$250m
$2,442,000
$1,400,000
$1,042,000
+41.7 bps
$300m
$2,442,000
$1,575,000
$867,000
+28.9 bps
$400m
$2,442,000
$1,925,000
$517,000
+12.9 bps
$500m
$2,442,000
$2,275,000
$167,000
+3.3 bps
$567m
$2,442,000
$2,442,500
−$500
-0.0 bps
$750m
$2,442,000
$2,900,000
−$458,000
-6.1 bps
$1000m
$2,442,000
$3,525,000
−$1,083,000
-10.8 bps
The hurdle is what the office must add, net, every year, simply to justify its own extra cost. Above the crossover it is negative: the office pays for itself before adding any value.
At $250.0m the hurdle is 42 basis points a
year — every year, through the cycle, from a five-person team, net of everything. At
$500.0m it is 3. That is the difference between a hard question and an
easy one, and it is two hundred and fifty million wide.
What moves the threshold — and by how much
The threshold is not a property of the industry. It is a property of two schedules, and both are
negotiable. Two changes, each of them ordinary:
Change
Crossover
Moves by
As it stands
$566.8m
—
A second analyst, at $160,000 of salary
$666.0m
+99m
Ten basis points off the top tier, 25 to 15
$611.3m
+45m
Both changes together
$776.7m
+210m
The second analyst is the trap. The instinct is to divide the salary by
the top-tier rate: $160,000 at 25 basis points is $64.0m, so
the crossover ought to move to about $630.8m. It does not. Employer costs and the bonus pool apply
to that salary like any other, so $160,000 of salary is $248,000 of cost, and the
crossover moves to $666.0m — $35.2m further than the naive answer.
A hire is never its salary.
And the fee cut moves the threshold less than the hire does: $44.5m against
$99.2m. Which is worth knowing before a negotiation, because it says where the leverage is not.
Ten basis points off a top tier feels like the bigger win and is worth under half of one analyst.
What the arithmetic does not settle
Confidentiality has a value that appears in no fee schedule. So does control over hiring, over what
gets reported and to whom, and over the ability to act on a Friday afternoon without a committee.
The point of computing the threshold is not to overrule those reasons. It is to price them. A family
building an office at $300.0m is choosing to pay about
29 basis points a year — $867,000 — for
control, confidentiality and continuity. That may be excellent value. It is a different decision from
believing the office is free, and only one of the two can be defended to the next generation.
The workbook behind this article
Every figure above is a live formula in the companion file for
The Family Office Professional. Change one salary, or one tier of the
fee schedule, and the crossover moves on its own. It is free, and it needs no account and no email
address.
Should corporate debt be fixed or floating?78.1818 per cent of gross debt fixed, and a net floating exposure after cash of -608,000.00 — the proportion, not the instrument.
Does an undrawn revolver count as liquidity?67.4567 per cent of the headroom, and it leaves at a fall in annual revenue of 8.4127 per cent — not the 13.3333 per cent the board deck implies.
Does supply chain finance count as debt?66,049,315 released, and leverage of 2.7622× or 3.1362× depending on which balance the test is asked of — the second is a breach at today's EBITDA.
How do you set a minimum cash balance?Three components, 124,596,281 in total — and the double count that turns a margin of 27,403,719 into an apparent shortfall of -3,988,281.
Is a 2/10 net 60 discount worth taking?An annualised 14.8980 per cent against a revolver at 4.50 per cent — worth 5,471,890 a year, and 0.3132 turns of reported leverage.
Does the fulcrum move with enterprise value?A worked capital structure at three enterprise values. The break migrates from the first lien to the subordinated notes without a single document changing.
How many companies does a reserve pool defend?Holding pro rata to the Series D costs $14.76m per company. A $40m reserve defends 2.71 of forty — and 61 per cent of the cost is the last round.
How much room a 1.15x downside actually leaves79 basis points of margin. The leverage covenant fails first, five basis points before the coverage covenant the chapter reports on, and 4.6 per cent of EBITDA is the whole cushion.
How the GP catch-up is actually solvedMost write-ups state the catch-up formula then hardcode the answer. Set it as a solve and it moves on its own when the carry rate does.
Six ways to state the same fund's return7.12 per cent, 18.04 per cent, or 1.323 times the public market — one fund, one set of flows. The eleven-point gap is the valuation, and it is not cash.
The IRR at which a closed-ended fund merely tiesA drawdown fund advertising 13.25 per cent ties an evergreen netting 8.64. On committed rather than called capital, 78.7 per cent of the edge vanishes.
The month a remediation trigger has to be armed byMonth 8, on a one-year window and a 14-week hiring lead time. The date is 12W − L/4.33 and holds for any portfolio size — the book only changes the euros.
Two routes to the same NAVFive findings in one quarter-end close, and not one of them was a modelling error. Every one was a control that did not exist.
What a CBAM certificate buffer costs to holdCarry and protection are both linear in the buffer, so the break-even probability is identical at 5 per cent and at 30 — and 2027 costs exactly twice 2026.
What a clawback actually collateralises24 million recovers 13.20 net of tax and 7.20 is escrowed. The rule is e ≥ 1 − t, and every euro won on the tax clause lands uncollateralised.
What a co-investment programme actually saves37 basis points, and a 22.8 per cent total-loss rate erases it. At the usual per-deal cap a single failure is 37 per cent of the annual cohort.
What a diligence exercise actually recoversEighteen basis points is only the part that reaches the yield. Three of the four instruments never do, and the exercise is worth thirty-one.
What a follow-on reserve is actually worth0.019 turns under plain dilution, 0.285 under pay-to-play. The optimum is a property of the shareholders’ agreement, not of the portfolio.
What a lease mark-to-market is actually worth5,788,000 becomes 807,365 once the over-market stream, the expiry dates and the cost of re-letting are priced — and nothing at all below a 43.7 per cent renewal rate.
What a minimum payment actually does£81.53 leaves the account and £20.46 reaches the debt. On minimums alone the set clears in 258 months and repays 1.78 times what was borrowed.
What a month of delay costs in an enforcement463,000 euros of present value a month. No single error about enforcement, and no pair of errors, moves the indifference point from 58.7 cents to the 72 on the table.
What a pro rata cheque actually costsDefending costs 1.25 times the initial cheque across two rounds, not more in each — and below a 521 exit the follow-on dollars come back worth less than they cost.
What a subscription line does to the IRR20 per cent becomes 38.41 on the same asset while the multiple falls. Two dollars of interest buys 18.4 points, and the longer the line runs the cheaper each point gets.
What one point of fees actually costsOne point on the annual charge turns 738,846 into 567,961 over forty years — 23 per cent of the pot, and 2.43 of wealth lost per 1 of fee.
When the promote stops clearingCarried interest is not proportional to performance near the hurdle. It is a step function, and $2m of headroom is what stands between a promote and none.
Why a secondaries bid-ask gap has no zoneThe seller’s floor and the buyer’s ceiling are one formula at two rates. At equal required returns the zone is exactly zero — here it is 11.02 points apart.
Why refining a due diligence rubric makes it weakerThree of twelve managers carry a terminal flaw and the average approves all three. Splitting eight domains into sixteen makes it easier to hide, not harder.
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