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The landscape of family offices is evolving and SFOs need to consider the impact these changes have on their practices.
Around half of family office portfolios will be invested in alternatives this year, up 10% from 2022. This growth in alternatives is at the expense of most other asset classes; for example, cash holdings fell by 3% between 2022 and 2023.1 With upwards of 7,000 family offices in the US2 managing an estimated $1.72 trillion in assets last year (a 14% increase from 2022), around 35% of these firms have five or fewer employees.3
No matter how a family office is legally structured, each firm has unique needs, requiring accounting and reporting solutions to manage the sophisticated portfolios of their ultra-high-net-worth clients. Consider also the common SFO approach of planning for the next 100 years of wealth — something that requires careful consideration of complex layered ownership structures and differing investment tolerances.
Despite these varied and increasingly complex needs, many family offices still rely on somewhat antiquated general ledger systems to manage their financial data. More than 80% of family offices still use generalist systems, including Excel and QuickBooks — systems which are rapidly becoming unfit for purpose.4 These systems are typically paired with legacy investment management and reporting platforms and other CRM and tax systems. Many of these systems are not integrated, fail to live up to their ‘all-in-one system’ claims and require manual duplicative data entry in multiple systems. As the complexity of investment strategies continues to grow in today’s dynamic markets, sole reliance on these legacy systems is no longer optimal — especially with the greatest generational wealth transfer in history fast approaching.
7,000+
family offices in the US managed $1.72 trillion in assets in 2023
Up 14% from 2022
50%
of family office portfolios will be invested in alternatives this year
Up 10% from 2022
80%
of family offices are still using generalist systems for general ledger
Understanding the family office challenge
While effective for core accounting tasks, current general ledger systems often fall short when it comes to providing the real-time transparency needed to manage complex investment portfolios. Fragmented data and inefficiencies are also common pitfalls of traditional systems, making it difficult for family offices to gain a comprehensive view of their holdings and make optimal data informed decisions.
The resources needed to collect, process and analyze both private and public investment data are enormous — and for SFOs, that can mean hiring additional staff to meet these data requirements.
While general ledger systems can be highly configurable, they are often designed for corporate finance frameworks and not built to easily support layered, multi-entity investment structures. The rigid and outdated nature of legacy investment management systems leaves SFOs facing extensive and inefficient manual workflows and lacking a single source of truth.
The rewards of data automation and a centralized system
After careful analysis of both Huizenga Capital Management’s needs and the available solutions on the market, Mr. Bradley found in Addepar a “true solution” that complements the limitations of general ledger systems.
Originally purpose-built for SFOs, Addepar offers a wide range of features tailored specifically to the needs of family offices. From comprehensive reporting capabilities to seamless API integration, the platform allows family offices to gain a comprehensive view of their holdings, track performance and make data-driven decisions.
For Mr. Bradley, it became clear that a system like Addepar presented a solution to the challenges Huizenga Capital Management — and many other SFOs — were facing.
The platform serves as a centralized system of record and boasts automatic connectivity for both public and private assets. It is used alongside general ledger systems, becoming the investment system of record where all investment detail resides and providing SFOs with a full, accurate view of their portfolios. With Addepar, general ledger systems have a more targeted role, and the combination of the two technologies enables purpose-built workflows that leverage the best possible tool for each task.
Additionally, the flexibility of Addepar’s data model — and the lack of record-keeping limitations on asset types and transactions — provides family offices with the support their hierarchical ownership structures require. Sue McDermott highlights the central role that Addepar’s data model, aggregation capabilities and open API architecture play in the family office system, re-emphasizing the benefits of a single platform solution operating as a single source of truth. Other notable benefits include reporting automation and quality and significant efficiency gains in data aggregation — from collection to processing to enrichment — without additional staff. Features such as premium market benchmarking and portfolio management equip SFOs to better manage their clients’ needs in volatile markets. Alongside this, Addepar’s projection tool, Navigator, can support SFOs with longer-term, forward-looking investment strategies. The projection tool is used to forecast cash flows, allocations and performance across diverse portfolios and asset types with ease.
Transition without disruption
For many SFOs, implementation is a pressing concern — and rightly so. When serving complex UHNW clients, ensuring both disruption and risk are minimized is paramount, one fact that explains the longstanding reluctance of SFOs to modernize their financial management systems.
Addepar is designed with these concerns in mind and implementation is a methodical process designed to minimize disruption while allowing SFOs to quickly draw value from the platform. Addepar gradually becomes the SFOs' book of record, with a transition that mitigates risk. Mr. Bradley noted, “Our teams worked well together during implementation and our implementation process was much smoother than a traditional general ledger system change.”
Costs are also lower than the typical cost of switching between general ledger systems. This is, in part, because instead of retiring their general ledger software entirely, SFOs can simply define new workflows that reduce their general ledger usage — moving investment detail into Addepar, achieving higher automation and fewer manual workflows.
Looking ahead
Addepar’s modular system enables vertical expansion and will allow family offices to add new features and functionality as their needs evolve, making this platform an ideal solution for future-facing SFOs. With its revolutionary approach to data aggregation, seamless integration and commitment to innovation, Addepar offers family offices the tools they need to thrive in today’s complex investment landscape.
As Mr. Bradley and Huizenga Capital Management have demonstrated, embracing modern technology solutions like Addepar can unlock new opportunities for growth and success in the family office space.
About the contributors
David Bradley, Huizenga Capital Management
Huizenga Capital Management was founded in 1990 and manages investments in a wide range of asset classes, including private equity, venture capital and hedge funds. The Huizenga family has been involved in numerous successful businesses including Waste Management, Blockbuster Video and more. The firm was recognized by Institutional Investor as its 2012 Family Office of the Year. Mr. Bradley was named as a Top 30 Family Office Investor in 2016. Prior to joining HCM in 2000, Mr. Bradley had a successful career overseeing numerous successful private companies.
Sue McDermott, Addepar
Sue is a Senior Program Director on the Partnerships Team at Addepar. She consults with clients and partners to help them develop an ecosystem of technology and services that best meets their needs. Sue has built her career on technology-enabled services for family offices. Prior to joining Addepar, she spent two decades in various roles at Rockefeller & Co., Inc. and Rockit Solutions, LLC. Sue spent five years leading Rockit as Chief Operating Officer. Sue brings a client-centric approach to the role with many years of experience.
References:
1. Family Offices Are Going on the Offensive, Trading Cash for Alternative Assets, CNBC, Feb 2024.
2. What Does a Family Office in The USA Look Like?, Forbes, Nov 2023.
3. The Rise and Rise of the Family Office: An Analysis, Forbes, Jan 2024.
4. New Research Takes a Deep-Dive into Family Office Challenges, Fund Count, Nov 2023.