Saturday, Oct. 31
Posted 8 a.m. EDT
If the wealthy ever wanted to be quiet about their fortunes, this is certainly not the time.
After being required by the pesky IRS to disclose their offshore accounts, now the upper echelon of the rich are feeling threatened with government scrutiny of their private investments.
The government has turned the the spotlight on an overhaul of financial services, and the latest to come under the glare are single family offices, which are designed to serve the investment needs of one family. According to a study by Wharton School at the University of Pennsylvania, there are approximately 1,000 single family offices in the world, each with $100 million or more in assets. The study also reported that it costs about $3 million per year to maintain such an office.
Proposed legislation in Congress would assess and monitor risk by removing the privacy that had been imbedded in hedge funds, private equity funds, and single family offices. Up to now, all three have been exempt from the 1940 Investment Advisers Act and remained somewhat under the radar.
But with the financial upset that caused the global recession, Congress has been turning a jaundiced eye toward privacy concerns when it comes to wealth.
"The pendulum in swinging toward more regulation; that's my personal view," says Scott Hill, senior vice president at Kanaly Trust in Houston. But he adds that single family offices may be caught up in the government's broader effort for more transparency in hedge funds and private equity funds.
Although every wealthy family is different, "generally, speaking, single family offices are set up to preserve a family's wealth," says Hill. That means families don't typically make the risky investments that hedge funds might use to increase profits. "Preservation is key," Hill notes, because often the original family fortune has to support multiple generations that have come after the wealth creator.
If the legislation passes in its current form, single family offices will be required to register with the SEC, and incur the burdens of increased reporting and costs.
Compliance with the SEC means that individual names of each investor, and their addresses, will have to be reported, increasing the concern that these private individuals will now be part of the public record, says Hill. Not suprisingly, a coalition has been organized to lobby against the proposed legislation.
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