While investment bankers pull 100-hour weeks in an attempt to claw back any hope of a bonus this season, family office professionals are walking away with 100%, if not 200%, of their annual salary as bonus season closes a successful year for family offices.
With more than three-quarters of family office professionals stating their bonus was unaffected by the coronavirus pandemic, the community has proven once again how resilient it is to adversity and rather than survive. Family offices have undoubtedly thrived as a result of further diversifying their investment portfolios.
More than two-thirds of family offices had further diversified their investment portfolios into new asset classes by the end of the first lockdown. A year on, some 97% of family office investment professionals say they oversee a diversified portfolio across multiple asset classes with another three-quarters containing both liquid and illiquid assets.
The push to incorporate a broader range of assets has also called for more in-house investment professionals catering for the likes of private equity and digital assets. There has also been a surge in demand for portfolio managers to oversee third-party managed investments, something 78% of family offices facilitate alongside direct investments.
With more assets under management, a newly diversified portfolio and larger in-house teams to manage both, we were expecting a selection of sophisticated structures catering for each asset class, but it seems overall discretionary bonuses are still the most common method of reward. Even where formulaic bonuses do exist, 20% have a discretionary element attached.
When it comes to the key drivers behind that discretionary bonus, the majority of family office professionals believe it is their relationship with the principal which has the greatest weighting. In fact, more than 50% of all accounting and finance, support and operational and investment professionals said this was single-handedly the biggest factor behind their bonus, but when it came to executives, they had a different theory altogether.
Executives believe their personal performance and the performance of the fund is of equal importance to their ability to have a relationship with the principal or fit in with the culture of the family office. This is hugely surprising given the vital importance of cultural fit in the small and intimate world of family offices, but suggests for executives, their personal performance is of utmost importance.
Another contrast which we found remarkably interesting was the geographical impact on bonuses.
For six years, our Global Family Office Compensation Benchmark Reports have found certain idiosyncrasies, but overall offered a cohesive and standardised view of compensation across the map.
Our Bonus Report suggests that actually, the UK and US specifically have a very different approach to paying-out bonuses with chief operating officers in the US taking home more than double their UK counterparts ($132,000 vs £45,000). When it came to executives, UK heads of family office overtake every specialism across every region by reaching bonuses of £262,500, although this time the UK bonus sits at almost double the US equivalent of $198,000.
Perhaps most surprisingly, given the importance of retaining talent in family offices, is the lack of Long-Term Incentive Plans (LTIPs) offered to professionals.
Executives which include chief executives, managing directors, chairpersons and heads of family offices, are most commonly offered a LTIP at 48% followed by investment professionals at 30% and then accounting, finance, support and operational staff all at 15%.
LTIPs have only been in and around the family office community for a few years and when taking that into account, 48% seems quite impressive, but when considering the seniority of the roles included in the category of executives—it is in our opinion, disappointing that less than half of family office chiefs are offered any type of long-term reward.
The same exists when discussing investment professionals, specialists who join family offices to grow their wealth and create the greatest return over a extended period of time. Despite this, less than a third are rewarded on a long-term basis and it is having a devastating impact on the loyalty and retention of staff.
While our quantitative data presents bonus trends for every specialism, our qualitative data presents a story and what it tells us is that those with longer-term reward structures are most content and driven to succeed within their family office. Our interviewees told us that having a LTIP, whether it be in the form of a forgivable loan, carried interest or a co-investing opportunity, was far more important than a monetary bonus given annually based on the performance of the person or overall fund.
LTIPs engage your staff, align your interests and incentivise them to stay within your family office for as long as they can—something family offices require to survive.