America's No. 1 financial conglomerate

Chapter 396 Family Office

During his stay in Hidden Mountain City, Ernst did more than just work like a slave; he also accomplished something that would benefit the Guanping family's long-term development: establishing a family office.

In Western capital markets, the concept of family management is a well-established wealth management model. It is no longer exclusive to ultra-high-net-worth individuals but has gradually become an important tool for asset planning and family governance for wealth holders at different levels.

Those with assets exceeding ten million US dollars, or even a net worth of one million US dollars, are the main group of people who run private offices, and this group is quite common.

Don't think of home offices as something high-end or that having one makes you a wealthy person. It mainly depends on what kind of home office is serving you.

There are two types of family offices: joint family offices and individual family offices. The two differ significantly in their target clients, operating models, and service scope.

A multi-family office can be seen as a professional organization, usually existing in the form of a company, targeting millionaires and multi-millionaires who want to enjoy the services of a family office but do not have the ability to set up their own.

By integrating resources and sharing service teams, joint family offices can provide clients with a range of professional services, including investment management, tax planning, and legal compliance, at a relatively low cost.

A personal family office is a dedicated service provider that is completely tailored to a single family, with its operating model and services closely aligned with the family's unique needs.

Families that can set up personal family offices are usually wealthy individuals with assets exceeding 100 million.

These types of family offices are highly independent and exclusive in terms of staffing, service scope, and decision-making mechanisms, and are also more diversified.

From investment and risk control of family assets to education planning and livelihood security for family members, and the inheritance of family culture and the improvement of family governance structure, it covers almost every aspect of family development.

"The question now is, how do you structure this family office?"

The entire setup of the office was assisted by Wenger, and now that the formalities are complete, the first step has stalled.

"I'll just do whatever structure other companies use." Ernst didn't understand what was so difficult about it.

Wenger shook his head and explained, "Generally speaking, private family offices have a three-tier structure, with each tier having its own functional positioning and operating mechanism."

"The grassroots level is the administrative support team, responsible for financial accounting, file management, family activity organization, children's education, and so on. All the specific execution of things is done at this level, or you could say they are the ones who do the work."

"The middle management is a professional management team responsible for managing the lower levels and leading the entire office. This includes investment managers, tax advisors, and legal experts, who are all part of the management team. The lower-level teams assist them in handling their respective tasks, which can be understood as setting goals."

"Above these two, there is a top level, namely the family governance committee, which is usually composed of five to seven core family members and is responsible for formulating the family vision and making decisions on the overall direction."

"For example, if the core objective of the family governance committee is the inheritance of wealth, then the middle management team will prioritize stability when formulating relevant investment plans. If the family governance committee's overall direction is wealth growth, then the middle management team will be more aggressive in formulating plans."

"The Garfield family?" Wenger didn't spell it out, but Ernst already understood what he meant.

They're just a bunch of ordinary people. What's the difference between letting them participate in the decision-making of a family office and throwing gold into the sea?

Even the Arlington family members' mindset and cognitive level are not up to par with the scale of Ernst's current assets.

Ernst made a quick decision: "Then I'll take charge of it all by myself for now. The entire family office will be directly under my responsibility."

To put it bluntly, the entire wealth of the Garfield family is essentially his personal wealth. His decisions are the only orders, and he doesn't need to consult with anyone else.

Besides providing professional wealth management and governance services to families, a crucial factor in establishing family offices is the sinking and concealment of wealth.

The saying "a tall tree catches the wind" is an age-old truth.

You can be the richest person, but when the gap between your wealth and the second-richest person becomes insurmountable, that's not a good thing.

With the instigation of those with ulterior motives, it is easy to arouse public resentment towards the wealthy.

Despite being an American, Congress is even more ruthless when it comes to its own people, as evidenced by numerous historical cases.

Before the 50s, the Rockefeller and Morgan families were the benchmarks of the United States, thanks to their enormous wealth and extensive business portfolios.

Why did these two families gradually disappear from the public eye after the 50s?

The Rockefeller and Morgan families disappeared from public view because they hid their wealth and themselves.

It's not that their family wealth has shrunk or their businesses have declined; rather, they have chosen to hide their wealth and themselves.

The Rockefeller family's wealth reached $15 billion in 1940, and for 15 years until 1955, their publicly disclosed wealth remained at $15 billion, a stability that seemed eerie.

Why do this?

Because of their enormous wealth and monopolistic industry position, they were subject to an antitrust investigation by the US government, which ultimately forced the breakup of their core companies, severely damaging their business.

You can have a huge industry, and you can have a huge fortune, but you can't let the people be jealous, to the point that everyone hates and is hostile to the rich.

Otherwise, the people would revolt, and the entire upper class would become their target of hatred.

Ancient peasant uprisings and the execution of the French emperor were essentially rooted in the unequal distribution of social resources.

Therefore, Rockefeller established a family office, creating a complex and secretive asset control system.

Family offices control multiple overseas companies, which then act as the main entities to invest in and control various investment institutions, ultimately holding shares in different companies through these investment institutions.

Just like the Seven Sisters of Oil, these large companies that were once closely associated with the Rockefeller family, it is difficult to find any direct evidence of their connection to the Rockefeller family in their apparent shareholding structure.

What Ernst is doing now is making a name for himself through the internet boom and achieving leapfrog development.

When the internet bubble burst, they conveniently hid all their assets, becoming an invisible force that moved them from the forefront to the background.

Wenger nodded at Ernst's decision, noted it down, and continued, "Besides the family governance committee, there's also the matter of Fengyun Capital. Are you really prepared to put Fengyun Capital into the family office as a ballast?"

"What about the investment structure there? Should it be changed, for example, regarding Apple stock?"

Ernst's requirement for the Garfield family business was inheritance, not the pursuit of wealth growth. For the Garfield family, his lifetime was enough to build a great empire.

For future generations, the most important thing is to preserve this legacy.

Therefore, the core principle he set for the family business was inheritance: the inheritance of wealth, the inheritance of children's education, the inheritance of personal connections, and so on.

When Wenger is looking for staff for his office, he prioritizes those who are steady and avoids those who are radical.

In terms of asset allocation, since it is about inheritance, wealth management must prioritize stability.

Assets that are irreplaceable and can maintain stable value over the long term will become the core choice for family office asset allocation.

For example, real estate in prime locations in core cities. Core cities are often the economic, financial, and cultural centers of a country or region, and their development prospects are highly stable and certain.

Taking New York in the United States and Shanghai in China as examples, as globally renowned international metropolises, these cities occupy an irreplaceable position in the national economic development strategy. Even in the face of macroeconomic fluctuations, their status as economic centers is difficult to shake.

The core areas of core cities are regions with highly concentrated resources, where various high-quality resources such as commerce, transportation, education, and medical care converge, making real estate in these areas extremely scarce and capable of preserving and increasing value.

In the long run, these types of real estate assets can not only effectively resist the impact of inflation, but their value will also steadily increase with the development of the city, making them one of the most stable cornerstones of family assets.

There are also gold, rare jewelry, and other items.

Gold can serve as a traditional safe-haven asset, possessing strong risk resistance capabilities and acting as a safety net for family assets.

Luxury assets such as high-end jewelry and art not only have certain use value and aesthetic value, but also, due to their scarcity and non-renewability, their collection value and market value tend to increase over time.

Another example is commercial real estate such as high-end hotels. It's hard to imagine that hotels would be the most stable investment, but top-tier high-end hotels are usually located in core cities or popular tourist destinations, with a stable customer base and continuous cash flow.

These types of assets not only generate stable income through daily operations, providing continuous cash flow support for the family, but their property value also continues to increase with the development of the area.

At the same time, as a tangible asset, high-end hotels have a strong ability to resist risks, and even during economic downturns, the fluctuation range of their value is relatively small.

In Wenger's view, Apple's stock simply does not meet the criteria for stability.

Apple seems to be doing very well lately, receiving a lot of attention and its stock price has risen significantly, with a bright future ahead.

But don't forget that just a year ago, it was facing bankruptcy.

There's also Google stock, and Fengyun Capital holds shares in some of Ernst's other companies, but these aren't safe options.

"Then we'll set up another organization, focusing on stable investments, while Fengyun Investment can be directly responsible to me."

Wenger opened his mouth, indicating that this was not in accordance with the family office guidelines. What difference was there between Ernst doing this and opening an investment company?

However, considering the speed at which the other party's wealth was growing, he chose to remain silent.

Glancing towards the kitchen, where Connery was learning to cook, Wenger lowered his voice slightly, "Regarding the beneficiaries, are we only including you and Casey?"

"Of course, the core of family-run businesses is not for anyone's retirement. Apart from me and my next generation, no one else will enjoy the benefits they provide."

Ernst vividly portrays the cold-blooded ruthlessness of capitalists; not only these women, but even his mother Whitney was excluded from the household.

These people have a family fund established by Ernst for their retirement, and the family business is what he left to his descendants.