August 8, 2025 • 49 mins
Christina Wing is a Senior Lecturer at Harvard Business School, where she teaches the “Family Enterprise” course—a foundational class for the rising generation of family office leaders. She’s also the founder of Wingspan Legacy Partners, where she advises ultra-high-net-worth families on governance, talent, and legacy.
In this episode, I sat down with Christina to unpack why most family offices are structurally flawed—and what to do about it. Christina shares insights from advising dozens of families and training hundreds of HBS students from Gen 1, Gen 2, and beyond.
We explore the real reason most family offices fail, how to build a high-functioning investment operation, and why separating investment, concierge, and philanthropic functions is critical. Christina also walks me through what makes MSD Capital, the Koch family office, and others stand out—and how the next generation can step up and lead with clarity.
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Transcript
Episode Transcript
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(00:00):
So you teach the family office class at HarvardBusiness School, and you believe that 90% of
(00:07):
family offices are structured incorrectly.
Why do you believe that?
What I teach is the family enterprise course,and family offices are a family enterprise.
And that is exactly why 90% are not structuredcorrectly because people think of them as
something that's not a business.
And so when we say family enterprise, we teachabout the business of family offices and the
(00:31):
business of operating companies needing thesame types of governance and planning.
The whole word family office is one of the mainreasons that 90% aren't structured right.
So how should family offices structurethemselves correctly?
Family offices should structure themselves justlike any other business.
There should be a business plan of why you'recreating it.
(00:54):
Then you should put together a team that couldexecute on the business plan that you created
and then you hire the team.
Instead, families tend to either come intoliquidity and or inherit money and they hire
their best friend or their cousin to run themoney.
(01:14):
What are some best practices?
What are the very, very top family offices dowhen it comes to managing their money?
So, ironically, because business is so muchabout speed these days, the best family offices
go slow to go fast.
And so they kind of take a beat, and theythink, why am I creating another business?
(01:39):
So, you know, first of all, they have torealize they're creating another business.
And many of the people we work with when I say,oh, so you retired from this and then you
decided to create another business.
They're like, no, no, no.
I don't want to do another job.
I'm like, but you're creating another business.
And if they realize they're creating anotherbusiness, that's the first step in succeeding
before they do anything else.
(02:00):
And so then, all right, great.
I'm creating this business.
What does that mean?
What is the purpose of the money?
Now you might sit there and say, well,Christina, that's a silly question.
The purpose of the money is to make money.
That's not the purpose of every family office.
Some family offices, the purpose of the moneyis preservation, not growth.
(02:21):
Some family offices, the purpose of the moneyis to spend it all philanthropically, which
means you need a different type of team.
And some family offices, the purpose is toabsolutely grow the money to the most possible
that they can.
All three of those scenarios need differentbusiness plans and different teams.
(02:41):
Are there any families that have gotten thisgovernance right?
And who would you point to as somebody that hasbeen really good at at building their family
office?
The concept of who's gotten this right is stillvery much in question.
And what I mean by that is that we're in earlyinnings of family offices.
(03:05):
You know in family businesses as a wholeexcluding family offices we're in generation
eleven, twelve.
We're not really in generation eleven andtwelve in many family offices barring a few
like the Rockefellers and others.
The families that are getting it right rightnow are separating concierge services from
(03:29):
investment management.
And so if you take one of the larger USfamilies, the Koch family, Koch Industries is a
family run founder driven business.
The Koch family also has a family office that'scompletely separate from that business.
(03:49):
And in their family office, they have separatedthe investment functions from the concierge
functions.
So they have an elegant investment team inDenver that is focused on making money.
They pay their employees similar to privateequity, venture capital, hedge funds, whatever
(04:12):
job they might be doing for the money.
Then they have concierge services in anentirely different state that deals with the
estate planning and the taxes and lifestylethings.
And then to double click on what at leastCharles Koch has created, he also has separated
his philanthropic giving from his investmentarm and has a whole other area called stand
(04:36):
together, run out of DC, that is about how todeploy investment dollars.
So the beauty of those three entities is eachgroup has a mandate and is paid based on the
services they provide.
Where we get in trouble is when one familyoffice has everything in under house.
And so you have an investment team, and thenyou have the concierge team, and you have other
(05:01):
foundation and other things.
And so as the head of the family office, whatare you in charge of?
Are you being paid on the investment returns?
Are you being paid on the bills being paid ontime and, you know, lifestyle things being
done?
Or are you being paid on evaluating aphilanthropic activity?
And so when you put them all under one, thehead never knows what's most important.
(05:24):
And I mean the head of the family office.
So think of it this way.
If you were a surgeon and your job is to savelives, but your job is also to run the
hospital.
And then your job is also to deployphilanthropic dollars for a hospital.
Like we can sit here and say clearly savinglives is more important than the other two.
(05:48):
However, maybe running the hospital property ismore important.
When you take important jobs and have differentvariables of what you can be measured, rarely
do them well.
Said another way, doing something better weekafter week is hard.
It's hard to constantly improve, and absent ofthose metrics being attributed to a specific
(06:12):
function or specific team, teams are gonna moreor less take for granted their current state
and not really push the envelope.
But once you put them into their own silos,then they start really optimizing on the
numbers, similar to how Google created theAlphabet HoldCo and made every single vertical
responsible for its own metrics and its for itsown growth and its own being a lot default
(06:36):
alive.
You're getting to a a question that I neverwanna answer.
And that question is, well, then how much moneydo you need to run a proper family office?
And what I mean by that is the analogy I justgave around the Kochs, they have a lot of
money.
But there are a lot of people that have familyoffices that have 50,000,000, a 100,000,000.
(07:01):
They still can have a family office but theyneed to understand that they're never going to
be able to hire the talent to go toe to toewith people that do private equity every day or
hedge funds every day or venture every day.
And so how do those people in family officessucceed if they want to have their own?
(07:21):
They outsource.
And so what that means is they might do alittle bit in house, but they're going to
outsource and use professionals to do the restbecause somebody that's running a smaller
family office can't afford the talent tocompete with people that do it day and day
again.
And that is kind of where the extra rub comes.
(07:41):
The rub is how do you structure it and then howmuch money do you have and how can you afford
talent?
I had Randall Quarles on the podcast who waspartner at Carlyle.
Is that who the top family offices arecompeting against, like the top private equity
firms, or are they mostly competing againstother family office executives?
(08:01):
In other words, is the pool truly family officeversus every other asset class for talent, or
is it just between family offices?
It's definitely against every other talent poolbecause there aren't enough good people working
in existing family offices to be poached forall the new ones being created.
(08:22):
And so what you're seeing is you're seeingexcellent asset allocators, investors, other
types of people being pulled from the top firmsin the world to run family offices.
And the pitch that they're getting is you neverhave to raise money again.
We have permanent capital.
You're gonna have autonomy.
(08:42):
You're not gonna work the same number of hoursand I'm gonna be very hands off.
Well, that sounds great, but you have to reallydo your due diligence because it's pretty hard
for a lot of matriarchs and patriarchs to bethat hands off.
But this talent gap is going to be one of themain things to watch with this great wealth
transition.
(09:03):
Because if we don't get the talent gap right,these family offices are gonna blow up, and
that's gonna just be devastating to theeconomy.
What are some examples of either very largefamily offices or just extremely well run
family offices that have found a way to make itin a revenue driver versus a cost driver?
(09:23):
So what's interesting about that question is Ibelieve almost every owner family office will
still say that their family office is a costcenter because for some reason they don't
understand that even saving them a lot of moneycan be viewed as profitable but they want to
(09:44):
see revenue.
So the best example would be MSD Capital whereMichael Dell set John Phelan and the team years
ago on a mission to make money, and heseparated that from the concierge services and
MSD crushed it.
They ran themselves equivalent to one of thebest private equity firms.
(10:06):
They paid their people like that and itcontinued on until John left and then MSD
merged.
So we'll see what happens with MSD and BDT nowthat they're together and they become more
institutional but the places that have broughtin the right talent from the beginning and the
(10:28):
patriarch and matriarch have been hands off arethe places that have done the best.
Similarly Pritzker.
I know you weren't inside the room in theseconversations, but what do you imagine the
pitch was from somebody like a Michael Dell toJohn?
How is he able to recruit him into that role?
I would think that the pitch would be I'm goingto save you the time of raising all this money.
(10:53):
I'm very focused on my existing business, whichis making computers.
So I'm not gonna meddle.
I'm also gonna be in Texas and you can run thisin New York and hire who you want and pay them
like it was a private equity firm.
And all I'm gonna do is look at the returns.
I think that's the pitch that gets somebody ofa very high talent level to wanna take this on
(11:17):
because there has to be a little bit of ego, inany investor.
And so many top investors when given that pitchwould say, well, I can raise the money.
And so if if raising the money is the onlything a family does for you, then that's not
good.
I would also imagine that Michael Dell said toJohn and the team, I'm also gonna open doors
(11:41):
for you and show you investments you might notsee.
But their match worked for twenty plus years.
That's pretty darn good.
That actually is longer than a lot of privateequity
To summarize, Michael Dell probably saidsomething to the kin of, first of all, what I'm
not gonna do.
I'm not gonna meddle in your business.
This is gonna be a professionally runorganization.
And, also, I will send you my relationships asI meet opportunities, as I meet people, and you
(12:06):
have the funds to get started so you couldaccelerate your business plan and you have
control over compensation and the ability to reretain and recruit the very top people.
And I bet he said, and you're gonna get richtoo alongside me.
I'm gonna get richer and you're gonna get rich.
Because the, you know, people don't go into thefield of investing to make a salary.
(12:30):
They go into the field of investing to crushit.
And so you have to compete with the carry andthe other things that you might get at other
firms.
Are you familiar with the 10x rule of theCanadian pension funds plans?
Yes.
So the 10 x rule is the Canadian pension plansOntario, teachers plan, CPP IB, they realized a
(12:54):
somewhat counterintuitive lesson in that ifthey pay their staff significantly more, they
could actually save 10 times in management feesand carries that they were sending out to GPs.
So they they could insource that, and and theyended up paying a lot of their GPs seven
figures.
So now US institutional investors, pensionfunds, foundations, endowments, oftentimes
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they're hamstrung.
I would say politically or optically, theycan't pay they can't pay a star person 2 or
$3,000,000 or $20,000,000 if they're really,like, the best of the best because they're
gonna have, the you public's gonna be anuproar, why are you paying out of our pension
plans $20,000,000, even if that saves them, youknow, $200,000,000 a year.
(13:39):
But family offices are are in a uniquesituation where they they're not beholden to
anybody but the family, so you think that theywould be kind of the second movers around
adopting this type of pay scale, but yet theyhaven't.
Why do you think that is?
They haven't because they don't value thefamily office the way they should yet.
I mean, people that create a family officedon't really even understand the fees that they
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used to be paying at banks and other places.
So number one, it's that.
The second reason is they're starting abusiness that they might not participate in
that actively.
And so they don't think of it as a for profit.
They think of it as a cost center that takescare of a variety of different things.
(14:26):
And so, you know, family office heads might noteven have any idea of the rigor that goes into
making investments, but they remember that youforgot to change the travel for their daughter
or the tuition was late.
And so they're, they're pissed.
And why am I paying you millions of dollarswhen you don't get the tuition in on time?
(14:47):
And so the lack of clarity of roles has alsodone that in, in the big, sovereign wealth
funds in Canada.
Those people aren't also doing personal thingsfor the individuals.
And so the results are very tangible that it'slike, we did this, we saved this.
In a family office, everything feels like acost.
(15:09):
And I think that many families put much oftheir consumption through the family office.
So it's hard to tell how profitable certainthings are because of the way that they
actually evaluate the bottom line.
Do I hope with all of my heart that familyoffices start paying competitively?
(15:31):
Yes.
And the ones that do get loyalty, they getbetter returns, and they get clarity of roles
and responsibilities and become a partner withthe matriarch patriarchs.
The ones that don't are the ones that live infear of the people that own the business and
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live in fear that they're gonna have to everyDecember go to bat to fight for their team to
get paid.
That's a really horrible way to run a businesswhen you're afraid that every year is gonna be
an argument.
And so my recommendation to family offices is,gosh, pay more and get better talent to, you
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know, have the incentives aligned.
So if you're one of the families that islooking to grow your wealth considerably, have
an LTIP program where your team gets paidsimilarly to the returns you make, give them
motivation.
If you're a family office that's focused onmaking money to give it away, you need a
(16:35):
different type of an investment team.
If you're a family office that's very focusedon asset preservation, then have a two person
family office team and outsource everything toother professionals and keep a moderate
portfolio.
So I think the pay and the mission need to bealigned.
And if we can get that right, why wouldn'teverybody wanna go to a family office instead
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of somewhere else?
It stinks to raise money, To travel around theglobe begging for money for a fund when you
just hit like top quartile, it's demoralizing.
It's annoying.
If you can have money that's permanently there,number one, you'll get more investments because
like, if I'm selling my business, I much morewant to sell it to a smart family office that
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is going be aligned with me to just keepgrowing it than to a private equity firm that's
going to have to sell it in seven years andfive years I'm gonna have to get antsy.
So as a founder, you should wanna sell tofamily offices.
As a family office, it's a competitiveadvantage to have permanent capital, but you
gotta pay your people.
If you don't pay your people well, you're gonnaget crappy investments and you kinda deserve
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them.
So I wanna go back to this kind of model familyoffice.
We've been oscillating between things not to doand things to do.
So let let's go back to things to do.
So, yeah, this MSD Capital, obviously, they'repaying them more, but how do you actually
structure the family office in a way that makesmoney for the patriarch?
In other words, are they creating blind poolsof capital where they're raising from other
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family offices?
What are the tactical things that these familyoffices are doing that separates them from
others that are are spending them?
There's two tactical things that family officesare doing to create revenue.
One of which is they are buying and orinvesting in businesses that are cash
generating.
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And so it's not just the deployment of themoney, and I'll see it when I see it.
They're investing in businesses that spit offcash right now.
So that feels like revenue.
So that is one thing that they're doing.
The second thing that they're doing is some ofthem are creating products in house that they
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leverage, other family office money for.
And so you'll see some family offices similarto the Pritzker's when they started and they
don't call themselves a family officepurposely, but they they are and that's how
they started saying we have this great teamthat knows how to evaluate opportunities.
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We can raise funds from other families so youdon't have to build this great team and we will
all be investors together.
Now when they do that, they get management feeand they get extra carry for their employees.
So you're seeing family offices taking theprivate equity model and other models in house
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and creating revenue streams for their familyoffice by deploying with other people's money.
It's it it makes sense, but you need to thenhave a team in house that's willing to do some
of the very things that were the reason theydidn't wanna go to a family office, which is
raise money and have the the other kind ofstructured rigor around other investors and
(19:58):
shareholders.
So it takes the right team to do it.
So let me take a stab on this, and I want youto correct me.
So I'm a gen one family office, say I have abillion dollars, and I first think about how do
I wanna be allocated?
Maybe I wanna have 30% venture, 20% privateequity, 15% in hedge funds, private credit,
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etcetera.
And then the way that I would leverage my moneyis I would be the anchor check for these
strategies.
I would go in and let's say in venture, Idecide my strategy is venture fund of fund.
I would go out and hire one of the top fund offund per people out there in the ventures
class.
I would say, come in, build this franchise forme, I'm the first anchor check.
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Then I would go out and do that in privateequity.
Maybe in private equity, it would be more dealby deal, but same thing.
I will backstop these investments and so on.
Is that oversimplified or is that how familyoffices can leverage their capital while also
staying consistent with their own investmentobjectives?
It's a little oversimplified because if you arebacking an individual to go create a fund,
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that's different than having a team in housethat you kind of get to know, see their
strengths, and then other people's money comesin.
And so what I mean by that is, many familyoffices, the patriarchs and matriarchs are
lonely and the CEO of the family office arelonely.
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Once they meet each other, they're so excitedto have people they can talk to because it
feels really silly when you've never been inthe business of wealth to talk about money with
other people.
But once you realize it's a business and youcan talk about it, you start to say, Hey,
David, I did this great deal.
My team is amazing.
They keep buying this great real estate.
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And then other families are like, Can I get inon that?
And so you start by kind of co investing a lotof times.
And then eventually when you realize you have adecent track record of doing it, then you might
say to said young individual who's been doingthe real estate, you wanna go raise a fund
around this with family office money?
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Here are five friends that I think would beinteresting.
Let's come up with economics that work for youas well, and then you go do it.
That's that is the more likely scenario.
However, there are other families that say, Idon't wanna have a huge team, but I wanna get
into the business of lowering my costs byhaving other people pay for part of my team.
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And those people go out and identify, like yousaid, here's a kick butt woman that wants to
invest in the tech space.
Let's call her Carol.
Hey, Carol.
I'll back you and give you seed money and youcan go raise a fund and we'll run it out of my
family office.
That's a different model than the first onethat's more natural.
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So one is more organic and the other one ismore kind of from from the beginning of your
thinking from a fund perspective?
And I think, you know, the people that do thelatter tend to be people that made their money
in financial services.
So, you know, there are a lot of billionairesthat have been investors all their lives and
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they get the whole, cost structure andeverything else better than anyone.
Those investors are the ones I see startingtheir family offices almost more like a search
fund model where they back a couple greatpeople and say, I'm gonna pay your salary in
this, go raise money and I will take GPinterest in your fund.
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Those people are more qualified to monitorthese kind of younger uprising, investors than
people that have never been in the investmentfield.
One of your unique vantage points is you teachthis class at Harvard Business School, and you
get to see these these gen two, gen threestudents in your classroom every day.
(24:04):
You get to really know them.
They work on projects.
Talk to me about the psychological aspectsbetween gen one and gen two or maybe gen two
and gen three families, and how do those playinto the dynamics of the family office?
Oh gosh, do we have twenty four hours?
Because one of the things that families arefamous for never talking about is money.
(24:26):
And so the the irony here is I see I know somany of my former students that had very
qualified investment careers somewhere beforebusiness school.
And they go to business school and theirparents say to them, let's set up a family
office.
And so they come into my office.
They're all excited.
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We're gonna set up a family office, and I'mgonna be an investor with my parents.
And I'm like, great.
How much money do you have?
I have no idea.
I'm like, what do you mean you have no idea?
Well, we don't talk about that.
Well, how do you know if you have the rightamount of money to set up a family office to
execute on the strategy that you want?
Well, I don't wanna ask them how much money Ihave.
(25:09):
They have I'm like, okay.
Well, would you go to another family office andtake a job without knowing how much money they
have?
Absolutely not.
And so the first thing is in order to havegeneration one to generation two to generation
three family offices, you have to talk abouthow much money you have.
If you're trying to recruit your daughter tojoin your manufacturing company, you start
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with, we have this met this much in revenue andyour targets to grow.
There's no hiding it.
Something about the money makes it difficultbecause parents feel like talking about money
with their children might lower theirmotivation and or, lead to different types of
bad behavior.
(25:55):
It it makes no sense.
People guess.
They they kind of figure out what people have.
They should just talk about it.
So number one, my issue is that.
The second thing is that when you're creating abusiness that's about money, everyone always
thinks it can just end any minute because youdon't sell it.
(26:15):
You just stop.
Well, it's so wrong because so many of yourpositions are long term or you might own
businesses.
Whereas if you own a business together, familymembers don't feel like they can just walk away
because they feel like, well, they might haveto sell it and they're all these employees.
And so the thing about generation one togeneration two succeeding in the family office
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space is treating it like a business,understanding it can't just be shut down
tomorrow.
It's not all cash.
And so you have to learn the roles and theresponsibilities that different people have.
And then the third thing about the generationtwo to three is we don't talk about money, but
we also don't talk about death.
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And so we don't talk about what is thesuccession plan for both the money and the
employees if something happens to the matriarchand patriarch.
And so unlike other businesses where theretends to be a CEO succession plan and a board
governance plan and all these other things,which by the way are hard to do.
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We don't do any of it in the family officeside.
And so you have teams of people running moneythat don't know if the matriarch and patriarch
die in The U S do we owe 50% in taxes?
Does our business go from 2,000,000,000 to1,000,000,000 overnight?
Does our business go from 2,000,000,000 to1,000,000,000 and then to four owners, meaning
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mom and dad are up here with the 2,000,000,000.
If they haven't structured things right, theydie.
It goes to 1,000,000,000 and then it's divviedup between their four kids.
So now you have four kids with $250.
Are they required to stay together in theestate planning or can they leave?
So do you suddenly have a team that is at thecost center of 2,000,000,000 that's now
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managing $250,000,000 because there's not beenthe right planning put in place for the family
unit to stay together.
So it's an entirely different succession set ofissues than it is in a different operating
company.
In many ways, it's it's pretty cruel.
It's like clipping the wings of the kids andthat they're waiting around not knowing so they
(28:36):
can't pursue something else.
And it's the previous generation's reluctanceto have those difficult conversations that
leads to significant difficulty in their kids'lives.
It's I mean, how often do you talk about moneyin your own family or death in your own family?
It's you know, you don't need to be a wealthyfamily to not talk about these things, but
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they're compounded when there's great wealth.
Me me and my partner and even me and my fiance,we talk about the step up in basis and death.
We think it's a great, great tax strategy.
So I'm a little bit different.
Last time we chatted, you really surprised me.
You said that the parents were more responsiblefor the difficult dynamics between the parents
and the kids.
And I had always thought it was the kids, kindof the spoiled rotten kids that are responsible
(29:23):
for that.
Double click on that.
Why is it that the parents are the ones thatare typically creating these problems?
I'm I'm so excited that you're giving me theopportunity to say that the rising gen are not
all spoiled brats because they're not.
They are really good people and I'm betting onthem.
I'm betting on them because they're gettingeducation, they're asking questions, they're
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trying to get training.
The parents are more responsible because theycreate a dynamic of what's appropriate to talk
about at home.
And I have parents that I work with that say,I'm gonna talk to my children about wealth when
they're in their thirties.
I'm like, in their thirties?
(30:07):
Like, do you think they're blind?
They're they're on your private plane.
They're on your yacht.
They they see the the wealth, but you're notgonna talk to them about it when they're young.
If you start talking to your children aboutwealth, first of all, how hard it is to save
money and talk to them about theirresponsibility, not what they're getting, then
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they're gonna be productive citizens.
The when we run into problems is when parentsjust give children a little bit of money along
the way and don't ever talk to them about aresponsibility.
And then the child feels this inadequacybetween the generation one and generation two,
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and they just kind of go off on their own.
I mean, by all means, are there spoiled peoplein the world?
Yes.
But they're not all wealthy.
There are a lot of other people that can behavein a spoiled way and whatnot.
But when I believe when you share what theresponsibility is of anything with people and
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you make them feel included, they rise to theoccasion.
And so I don't think all families should leaveall the money that they've created to their
children, but I think they should educate themon the responsibility and the options and the
great things they could do with that money.
I love my students that come in and have greatdreams of having huge social impact and that
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they have been educated for generations aboutthe wealth that their family has created.
And they, from a young age, talk to the familyabout, I wanna use some of that wealth to
create clean water in India, to bring, youknow, telephones and things to rule Turkey.
And so why not embrace them early so it's partof everyone's plan?
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When you wait too long, that's when badbehavior starts.
That's why I think it's the parents'responsibility.
All things being equal, I rather work with theGen one versus the Gen two individual.
Typically the Gen one, he or she is just selfmade, has similar values to me.
In Gen two, probably if I had to put a number,80% of the time there's an entitlement, maybe
(32:21):
20%, they're they, you know, are exactly liketheir parents.
They work hard.
Their parents made them work.
But 80% of the time, they are extremelydifficult to work with, at least from the
business context.
Now you might argue those two theories might bealigned in that the reason that they're spoiled
and difficult to work with is because of badparenting.
I give you that.
But isn't there something to that in that thisthere is almost a form of entitlement in gen
(32:45):
two, even if it's not their fault, just growingup with money leads to this kind of behavior
versus gen one is more able to align withpeople.
And gen one has learned the skill set ofinfluencing people and partnering with people
to do the things that they wanna do versus gentwo kind of has this, like, do this for me
because I'm x y z name?
(33:05):
I think, you know, we could turn it around andsay, you love founders.
And so, like, I love founders.
I am infatuated with how they came up with thisidea, how they pursued it, and how they were
successful.
Now most of the founders that I've met hadnothing to lose.
(33:30):
And so their entire thing was I'm gonna createthis great shoe company.
And they didn't have any money to begin with.
Many of them are immigrants and they're justgritty, hardworking, and you love the story of
their family business or whatever they did.
Now, many g twos are viewed as not as gritty.
(33:52):
And so you already kind of lose the interest intheir story.
However, I'd argue that many g twos and onwardhave a responsibility, a guilt, and a
nervousness of losing what g one created.
(34:12):
And that is where, they might behavedifferently.
They might not take the same risks.
You might not be as attracted to them becausethey're not just, like, all in.
And that's because many of them feel thisresponsibility to carry on this legacy.
This is where our opportunity exists.
If g ones would remind and continue to teach gtwos that the only reason we even call them a g
(34:38):
one is because they were an entrepreneur.
Our family is built on entrepreneurship.
So you g two, you might have some funds Ididn't have, but we're all about growth and
entrepreneurship.
Get out there, do something.
And it can be something for profit, not forprofit, but if if we better keep being
entrepreneurs each generation or whatever wedid in g one is gonna be gone by g three.
(35:03):
And so I think it's it's more the story.
Like, I am consistently incredibly attracted tothe story of g one because I wanna sit around a
fire with a bottle of wine and hear how theydid all this.
But I can tell you, I've met a lot of g twosthat were raised in the household with
(35:24):
entrepreneurship as the backbone, with fiscaland moral, it just reinforcement, and they are
back to be entrepreneurs.
They're just as good as g one.
But they will never be g one.
And so, you know, what's the life of aninheritor?
(35:44):
Is it being an inheritor mean inheriting moneyor does it you can also be an inheritor that
inherited responsibility.
But then the third thing is you can be aninheritor of a legacy.
And so it's daunting to inherit a legacy.
(36:04):
There are a lot of people that inherit thelegacy of what g one put out there without any
money.
And so let's give g two and g three andeverybody else a chance, but get out there and
do something.
And I'm with you.
Like, if they're lazy, they're it's the same asany other lazy person, and we all see tons of
those.
But this if we don't start betting on therising gen, we're in a whole world of hurt
(36:31):
because this wealth transition that's cominghas the opportunity to transform our world in a
way that nobody's ever seen.
And so let's give them the tools to do it.
You mentioned the g two should go out and dosomething and fail.
I'm reminded of the Jeff Bezos quote, which isI rather have a child with nine fingers than a
child that does not have resourcefulness.
(36:53):
I completely agree.
And I also say fail fast.
And so if you go back to what do we not talkabout at home, we don't talk about money, we
don't talk about death, we also don't talkabout failures.
And so when we raise our families and the onlytime we talk about anything is when they won
the race or they got an A, that's a problembecause you don't always win every race.
(37:17):
My father used to say that when you wereskiing, if you didn't fall, you weren't getting
better.
And you know, so fall, learn because you pushedyourself harder and then get up.
And so there has to be room in life forfailure.
And I'm a mother of three.
I also struggle.
I want to keep celebrating failure becausefailure is putting yourself out there and
(37:41):
trying something.
I mean, failure could be going and doing animprov night and nobody laughs.
Well, at least you tried.
So you have to try.
And we as parents have to give the safe spacefor what is perceived as failure.
Otherwise,
we're
gonna get mediocracy because no one's gonna putthemselves out there.
As I mentioned, you have this really greatvantage point in that you're now approaching
(38:04):
close to a thousand students from gen one, gentwo, gen three, and people that wanna work in
family offices, and you see them intimatelyyear one from year two.
Is being a centimillionaire or a billionaire,is that a curse that these families have?
Would they be better off just, you know, beingmoderately wealthy and not having to deal with
these dynamics, or is it still a blessing inyour in your opinion?
(38:27):
I I I view being incredibly wealthy as anopportunity, not a curse and not a blessing.
I think it can be a curse if you don't chooseto use the opportunity the right way.
And what I mean by that is if you're afraid ofthe money and it makes you afraid of your own
(38:47):
shadow and you never do anything that you loveor wanna try because of it, then it is probably
a curse.
But I look at it as an opportunity to make tochange the world.
And changing the world does not mean that Iwant everybody to give all their money away.
It means take that money and create more jobs.
(39:08):
Take that money and be innovative and, youknow, rise people up.
I mean, there's so many ways to have impact andfamilies by nature are better stewards of
businesses than most.
They care for their community.
They care for their employees.
(39:28):
In the families I work with, during COVID, notone of my families laid one person off.
They just took they take care of their own.
So if you could take this wealth and keepinvesting it in the people and the community
and businesses, then it's an opportunity, not acurse.
Where it's a curse is if you have it somewherewhere nobody can access it, nobody understands
(39:53):
it, and it you know, it's used as a weapon.
If you don't do this, I won't give you that,then it's a curse.
To use a Gen Z term, it's it's main playerenergy versus NPC, a non non playing character.
So you're walking around the world instead ofjust being beholden to circumstances and having
things happen to you, you go out there and youshape the future for your family and for
(40:17):
others.
And, yes, some of the times, maybe most of thetime, you fail and you learn, but you're
constantly developing yourself in pursuit ofyour goals of making the world a better place,
making your family better off, all these thingsthat family offices have as their north star.
Absolutely.
And you know, just to kinda double click againon g one versus other generations, the the
(40:43):
prior you know, g one holds a good amount ofresponsibility because they typically set the
stage for what can be discussed.
But g two, g three, g four, like step up, askthe difficult questions.
You know, if you sit there and wait forsomebody to kind of tell you everything, then
shame on you as well.
(41:04):
It it needs to be a conversation.
And if you're a part of the the dialogue froman early age, then it works.
If you're afraid of g one, then maybe there's areason.
I love that there's a concept called extremeownership by Jocko Willock, and he explains it
in a battlefield.
Battle could a battlefield could be verychaotic, and at any point, it's not like a
(41:28):
movie where everybody's going in in rows andeverything's predictable.
There's bullets flying, and at any point, youmight have 9090% lack of control on anything.
But even then, you have this 10% agency, this10%, like, how you move around, what angles
you're you're going so that you're not sniped,like, how you communicate with your battalion.
(41:50):
So even if 90% of what you do has no is set instone and you can't change, you still could
focus on that 10%.
And even if you're gen two and you have adifficult parent, which, almost by definition,
these founders are extremely difficult, youknow, unchangeable characters.
You still have that 10%.
(42:10):
You could focus on that and how do you change?
How do you bring up those tough conversations?
How do you make your family better even andmaybe even especially if it's in a difficult
dynamic.
Absolutely.
And persistence is an admirable trait.
And so when you said you'd always rather bewith a G1, I bet there will be some G2s, G3s
(42:32):
you'll meet that are persistent and get thingsdone that you'll like just as much as founders.
But we need more of g two to have thatpersistency.
And, you know, you referenced at Harvard that Ihave the opportunity to work with the rising
gen.
I also have the opportunity to work with theirparents because we have exec ed programs.
(42:53):
So I get to see the parent in the room with thechild for classes, and that's when it's really
amazing because when you see a parent that islistening to another two talk and they're
shaking their head and afterwards they're like,that's just ridiculous.
He should have educated his son on blah blahblah.
And then I'm looking at this one going, you'redoing the same thing.
(43:15):
You're also not sharing that information.
And so when you put them all together and youstart talking, that's when people start
changing.
And so back to where we started, you know,being a founder is lonely, and many of family
offices are started with founder generationmoney.
(43:36):
We need these family offices to start speaking.
And unlike the places they're competing with,they're not competing with each other as much.
And so, like, they can they can collaborate.
And so hopefully, you'll invite me back on thisin five years and we'll see family offices
outperforming all of the other asset categoriesbecause they're gonna finally get it right.
(44:00):
But right now, we're still on the hamster wheela little bit.
Give me some low hanging fruits.
What is something that gen one or gen twofamily members could do today in order to
significantly increase their chance of success?
The the first thing they should do is make surethey really have a mission for their family
office.
The second thing they should do is make surethat they have a business plan with metrics and
(44:24):
that they hire the right people.
What I would say for anyone starting a familyoffice, do not hire your best friend or give
the job to somebody you know because you trustthem with your money.
That is so different than trusting them to growyour money.
You need to have the patience to find the rightpeople and put a professional team in place.
(44:48):
Also low hanging fruit, it is not a place forfamily members that are unemployable elsewhere.
Family offices are not a place for unemployablefamily members.
I can't say that enough.
And you need to understand you're creatinganother business.
(45:09):
If people listen to your podcast and say, oh mygod, I didn't wanna create another business.
Why do I really is family office really anotherbusiness?
Yes.
And if you don't want it, shut it down.
Put your money, outsource it to the wealthmanagers, and hire one person to do concierge
services for your family.
But if you've put a team together and they'rein charge of all your money, it is another
(45:32):
business.
And so people need to understand that.
I would posit that those gen one family membersthat don't want another business should go take
three months off, go on go on a beach, and thencome talk to us because I suspect in three
months, they will be ready.
Probably in one month, the the successful oneswill be ready for their for their next business
and for their next adventure.
(45:53):
Hopefully.
And if they took that three months on thebeach, they realized they didn't wanna hire
their two best friends to do it because theirtwo best friends should be their two best
friends, and let's go put a business plantogether and hire the right people.
It's almost like this advice when somebody getsa huge liquidity event.
They say, put it in the bank or put it in the Sand P 500 or whatever equivalent for thirty
(46:16):
days.
Do nothing.
The best thing you could do for thirty days isdo nothing.
Let kind of the endowment effect take place.
It's a psychological phenomenon that you're nowconsistent with your new amount of money, and
just relax and don't do anything crazy becausetypically in those thirty days, people do some
make some outlandish purchases and make somepoor investments.
(46:38):
They they do, David, and that's going back tothe go slow to go fast.
And, you know, most of these people wereoperators of something they loved.
And so suddenly, if they sold completely andthey simply have liquidity, they're twiddling
their thumbs because they're used to being ontwenty four seven.
(46:59):
And what do they do?
They buy another business.
And so, you know, take a minute, understandwhat you wanna do, and then do it.
Many founders of, family offices that we setup, we give them like a slush fund to play with
because they want to go buy a Dunkin' Donutfranchise, or they want to go buy something
(47:20):
that they can tinker with because they don'tenjoy the business of money going up and down.
And so that's why you have to have the mission.
And if the mission is to make more money, saidfounder has to remember to make more money, we
have to deploy it.
And so, you know, all of them, I love the idea.
Three months on the beach, go do that, and thenlet's talk.
(47:43):
But that's not what happens.
They get the money and they start investing,and that's why we call it bottom up instead of
top down.
This has been a master class on family officeinvesting.
How should the audience keep in touch with youand keep track of everything that you're
working on?
Oh, well, that's very flattering.
I mean, I'm very easy to find, through theHarvard Business School website, and you can't
(48:06):
miss me there.
And then also through Wingspan, which is myprivate practice that advises families.
And what I will tell all of you that arelistening to this, we have yet to meet a family
office that's hired us, that doesn't need to becompletely restructured.
And so I've challenged, come find me and showme one that doesn't need to be restructured
(48:30):
because to date, everyone we have worked withneeds a complete restructuring.
And, that that's something we need to change.
We need to start getting it right from thebeginning.
Great.
Well, thank you, Christina.
Appreciate you jumping on and look forward tositting down in Boston and New York very soon.
Come see me.
Come to class.
I would love that.
Thank thank you for seeing you.
(48:51):
Thanks for listening to my conversation.
If you enjoyed this episode, please share witha friend.
This helps us grow.
Also provides the very best feedback when wereview the episode's analytics.
Thank you for your support.
So you teach the family office class at HarvardBusiness School, and you believe that 90% of
(00:07):
family offices are structured incorrectly.
Why do you believe that?
What I teach is the family enterprise course,and family offices are a family enterprise.
And that is exactly why 90% are not structuredcorrectly because people think of them as
something that's not a business.
And so when we say family enterprise, we teachabout the business of family offices and the
(00:31):
business of operating companies needing thesame types of governance and planning.
The whole word family office is one of the mainreasons that 90% aren't structured right.
So how should family offices structurethemselves correctly?
Family offices should structure themselves justlike any other business.
There should be a business plan of why you'recreating it.
(00:54):
Then you should put together a team that couldexecute on the business plan that you created
and then you hire the team.
Instead, families tend to either come intoliquidity and or inherit money and they hire
their best friend or their cousin to run themoney.
(01:14):
What are some best practices?
What are the very, very top family offices dowhen it comes to managing their money?
So, ironically, because business is so muchabout speed these days, the best family offices
go slow to go fast.
And so they kind of take a beat, and theythink, why am I creating another business?
(01:39):
So, you know, first of all, they have torealize they're creating another business.
And many of the people we work with when I say,oh, so you retired from this and then you
decided to create another business.
They're like, no, no, no.
I don't want to do another job.
I'm like, but you're creating another business.
And if they realize they're creating anotherbusiness, that's the first step in succeeding
before they do anything else.
(02:00):
And so then, all right, great.
I'm creating this business.
What does that mean?
What is the purpose of the money?
Now you might sit there and say, well,Christina, that's a silly question.
The purpose of the money is to make money.
That's not the purpose of every family office.
Some family offices, the purpose of the moneyis preservation, not growth.
(02:21):
Some family offices, the purpose of the moneyis to spend it all philanthropically, which
means you need a different type of team.
And some family offices, the purpose is toabsolutely grow the money to the most possible
that they can.
All three of those scenarios need differentbusiness plans and different teams.
(02:41):
Are there any families that have gotten thisgovernance right?
And who would you point to as somebody that hasbeen really good at at building their family
office?
The concept of who's gotten this right is stillvery much in question.
And what I mean by that is that we're in earlyinnings of family offices.
(03:05):
You know in family businesses as a wholeexcluding family offices we're in generation
eleven, twelve.
We're not really in generation eleven andtwelve in many family offices barring a few
like the Rockefellers and others.
The families that are getting it right rightnow are separating concierge services from
(03:29):
investment management.
And so if you take one of the larger USfamilies, the Koch family, Koch Industries is a
family run founder driven business.
The Koch family also has a family office that'scompletely separate from that business.
(03:49):
And in their family office, they have separatedthe investment functions from the concierge
functions.
So they have an elegant investment team inDenver that is focused on making money.
They pay their employees similar to privateequity, venture capital, hedge funds, whatever
(04:12):
job they might be doing for the money.
Then they have concierge services in anentirely different state that deals with the
estate planning and the taxes and lifestylethings.
And then to double click on what at leastCharles Koch has created, he also has separated
his philanthropic giving from his investmentarm and has a whole other area called stand
(04:36):
together, run out of DC, that is about how todeploy investment dollars.
So the beauty of those three entities is eachgroup has a mandate and is paid based on the
services they provide.
Where we get in trouble is when one familyoffice has everything in under house.
And so you have an investment team, and thenyou have the concierge team, and you have other
(05:01):
foundation and other things.
And so as the head of the family office, whatare you in charge of?
Are you being paid on the investment returns?
Are you being paid on the bills being paid ontime and, you know, lifestyle things being
done?
Or are you being paid on evaluating aphilanthropic activity?
And so when you put them all under one, thehead never knows what's most important.
(05:24):
And I mean the head of the family office.
So think of it this way.
If you were a surgeon and your job is to savelives, but your job is also to run the
hospital.
And then your job is also to deployphilanthropic dollars for a hospital.
Like we can sit here and say clearly savinglives is more important than the other two.
(05:48):
However, maybe running the hospital property ismore important.
When you take important jobs and have differentvariables of what you can be measured, rarely
do them well.
Said another way, doing something better weekafter week is hard.
It's hard to constantly improve, and absent ofthose metrics being attributed to a specific
(06:12):
function or specific team, teams are gonna moreor less take for granted their current state
and not really push the envelope.
But once you put them into their own silos,then they start really optimizing on the
numbers, similar to how Google created theAlphabet HoldCo and made every single vertical
responsible for its own metrics and its for itsown growth and its own being a lot default
(06:36):
alive.
You're getting to a a question that I neverwanna answer.
And that question is, well, then how much moneydo you need to run a proper family office?
And what I mean by that is the analogy I justgave around the Kochs, they have a lot of
money.
But there are a lot of people that have familyoffices that have 50,000,000, a 100,000,000.
(07:01):
They still can have a family office but theyneed to understand that they're never going to
be able to hire the talent to go toe to toewith people that do private equity every day or
hedge funds every day or venture every day.
And so how do those people in family officessucceed if they want to have their own?
(07:21):
They outsource.
And so what that means is they might do alittle bit in house, but they're going to
outsource and use professionals to do the restbecause somebody that's running a smaller
family office can't afford the talent tocompete with people that do it day and day
again.
And that is kind of where the extra rub comes.
(07:41):
The rub is how do you structure it and then howmuch money do you have and how can you afford
talent?
I had Randall Quarles on the podcast who waspartner at Carlyle.
Is that who the top family offices arecompeting against, like the top private equity
firms, or are they mostly competing againstother family office executives?
(08:01):
In other words, is the pool truly family officeversus every other asset class for talent, or
is it just between family offices?
It's definitely against every other talent poolbecause there aren't enough good people working
in existing family offices to be poached forall the new ones being created.
(08:22):
And so what you're seeing is you're seeingexcellent asset allocators, investors, other
types of people being pulled from the top firmsin the world to run family offices.
And the pitch that they're getting is you neverhave to raise money again.
We have permanent capital.
You're gonna have autonomy.
(08:42):
You're not gonna work the same number of hoursand I'm gonna be very hands off.
Well, that sounds great, but you have to reallydo your due diligence because it's pretty hard
for a lot of matriarchs and patriarchs to bethat hands off.
But this talent gap is going to be one of themain things to watch with this great wealth
transition.
(09:03):
Because if we don't get the talent gap right,these family offices are gonna blow up, and
that's gonna just be devastating to theeconomy.
What are some examples of either very largefamily offices or just extremely well run
family offices that have found a way to make itin a revenue driver versus a cost driver?
(09:23):
So what's interesting about that question is Ibelieve almost every owner family office will
still say that their family office is a costcenter because for some reason they don't
understand that even saving them a lot of moneycan be viewed as profitable but they want to
(09:44):
see revenue.
So the best example would be MSD Capital whereMichael Dell set John Phelan and the team years
ago on a mission to make money, and heseparated that from the concierge services and
MSD crushed it.
They ran themselves equivalent to one of thebest private equity firms.
(10:06):
They paid their people like that and itcontinued on until John left and then MSD
merged.
So we'll see what happens with MSD and BDT nowthat they're together and they become more
institutional but the places that have broughtin the right talent from the beginning and the
(10:28):
patriarch and matriarch have been hands off arethe places that have done the best.
Similarly Pritzker.
I know you weren't inside the room in theseconversations, but what do you imagine the
pitch was from somebody like a Michael Dell toJohn?
How is he able to recruit him into that role?
I would think that the pitch would be I'm goingto save you the time of raising all this money.
(10:53):
I'm very focused on my existing business, whichis making computers.
So I'm not gonna meddle.
I'm also gonna be in Texas and you can run thisin New York and hire who you want and pay them
like it was a private equity firm.
And all I'm gonna do is look at the returns.
I think that's the pitch that gets somebody ofa very high talent level to wanna take this on
(11:17):
because there has to be a little bit of ego, inany investor.
And so many top investors when given that pitchwould say, well, I can raise the money.
And so if if raising the money is the onlything a family does for you, then that's not
good.
I would also imagine that Michael Dell said toJohn and the team, I'm also gonna open doors
(11:41):
for you and show you investments you might notsee.
But their match worked for twenty plus years.
That's pretty darn good.
That actually is longer than a lot of privateequity
To summarize, Michael Dell probably saidsomething to the kin of, first of all, what I'm
not gonna do.
I'm not gonna meddle in your business.
This is gonna be a professionally runorganization.
And, also, I will send you my relationships asI meet opportunities, as I meet people, and you
(12:06):
have the funds to get started so you couldaccelerate your business plan and you have
control over compensation and the ability to reretain and recruit the very top people.
And I bet he said, and you're gonna get richtoo alongside me.
I'm gonna get richer and you're gonna get rich.
Because the, you know, people don't go into thefield of investing to make a salary.
(12:30):
They go into the field of investing to crushit.
And so you have to compete with the carry andthe other things that you might get at other
firms.
Are you familiar with the 10x rule of theCanadian pension funds plans?
Yes.
So the 10 x rule is the Canadian pension plansOntario, teachers plan, CPP IB, they realized a
(12:54):
somewhat counterintuitive lesson in that ifthey pay their staff significantly more, they
could actually save 10 times in management feesand carries that they were sending out to GPs.
So they they could insource that, and and theyended up paying a lot of their GPs seven
figures.
So now US institutional investors, pensionfunds, foundations, endowments, oftentimes
(13:16):
they're hamstrung.
I would say politically or optically, theycan't pay they can't pay a star person 2 or
$3,000,000 or $20,000,000 if they're really,like, the best of the best because they're
gonna have, the you public's gonna be anuproar, why are you paying out of our pension
plans $20,000,000, even if that saves them, youknow, $200,000,000 a year.
(13:39):
But family offices are are in a uniquesituation where they they're not beholden to
anybody but the family, so you think that theywould be kind of the second movers around
adopting this type of pay scale, but yet theyhaven't.
Why do you think that is?
They haven't because they don't value thefamily office the way they should yet.
I mean, people that create a family officedon't really even understand the fees that they
(14:04):
used to be paying at banks and other places.
So number one, it's that.
The second reason is they're starting abusiness that they might not participate in
that actively.
And so they don't think of it as a for profit.
They think of it as a cost center that takescare of a variety of different things.
(14:26):
And so, you know, family office heads might noteven have any idea of the rigor that goes into
making investments, but they remember that youforgot to change the travel for their daughter
or the tuition was late.
And so they're, they're pissed.
And why am I paying you millions of dollarswhen you don't get the tuition in on time?
(14:47):
And so the lack of clarity of roles has alsodone that in, in the big, sovereign wealth
funds in Canada.
Those people aren't also doing personal thingsfor the individuals.
And so the results are very tangible that it'slike, we did this, we saved this.
In a family office, everything feels like acost.
(15:09):
And I think that many families put much oftheir consumption through the family office.
So it's hard to tell how profitable certainthings are because of the way that they
actually evaluate the bottom line.
Do I hope with all of my heart that familyoffices start paying competitively?
(15:31):
Yes.
And the ones that do get loyalty, they getbetter returns, and they get clarity of roles
and responsibilities and become a partner withthe matriarch patriarchs.
The ones that don't are the ones that live infear of the people that own the business and
(15:53):
live in fear that they're gonna have to everyDecember go to bat to fight for their team to
get paid.
That's a really horrible way to run a businesswhen you're afraid that every year is gonna be
an argument.
And so my recommendation to family offices is,gosh, pay more and get better talent to, you
(16:14):
know, have the incentives aligned.
So if you're one of the families that islooking to grow your wealth considerably, have
an LTIP program where your team gets paidsimilarly to the returns you make, give them
motivation.
If you're a family office that's focused onmaking money to give it away, you need a
(16:35):
different type of an investment team.
If you're a family office that's very focusedon asset preservation, then have a two person
family office team and outsource everything toother professionals and keep a moderate
portfolio.
So I think the pay and the mission need to bealigned.
And if we can get that right, why wouldn'teverybody wanna go to a family office instead
(16:59):
of somewhere else?
It stinks to raise money, To travel around theglobe begging for money for a fund when you
just hit like top quartile, it's demoralizing.
It's annoying.
If you can have money that's permanently there,number one, you'll get more investments because
like, if I'm selling my business, I much morewant to sell it to a smart family office that
(17:23):
is going be aligned with me to just keepgrowing it than to a private equity firm that's
going to have to sell it in seven years andfive years I'm gonna have to get antsy.
So as a founder, you should wanna sell tofamily offices.
As a family office, it's a competitiveadvantage to have permanent capital, but you
gotta pay your people.
If you don't pay your people well, you're gonnaget crappy investments and you kinda deserve
(17:46):
them.
So I wanna go back to this kind of model familyoffice.
We've been oscillating between things not to doand things to do.
So let let's go back to things to do.
So, yeah, this MSD Capital, obviously, they'repaying them more, but how do you actually
structure the family office in a way that makesmoney for the patriarch?
In other words, are they creating blind poolsof capital where they're raising from other
(18:08):
family offices?
What are the tactical things that these familyoffices are doing that separates them from
others that are are spending them?
There's two tactical things that family officesare doing to create revenue.
One of which is they are buying and orinvesting in businesses that are cash
generating.
(18:29):
And so it's not just the deployment of themoney, and I'll see it when I see it.
They're investing in businesses that spit offcash right now.
So that feels like revenue.
So that is one thing that they're doing.
The second thing that they're doing is some ofthem are creating products in house that they
(18:50):
leverage, other family office money for.
And so you'll see some family offices similarto the Pritzker's when they started and they
don't call themselves a family officepurposely, but they they are and that's how
they started saying we have this great teamthat knows how to evaluate opportunities.
(19:11):
We can raise funds from other families so youdon't have to build this great team and we will
all be investors together.
Now when they do that, they get management feeand they get extra carry for their employees.
So you're seeing family offices taking theprivate equity model and other models in house
(19:31):
and creating revenue streams for their familyoffice by deploying with other people's money.
It's it it makes sense, but you need to thenhave a team in house that's willing to do some
of the very things that were the reason theydidn't wanna go to a family office, which is
raise money and have the the other kind ofstructured rigor around other investors and
(19:58):
shareholders.
So it takes the right team to do it.
So let me take a stab on this, and I want youto correct me.
So I'm a gen one family office, say I have abillion dollars, and I first think about how do
I wanna be allocated?
Maybe I wanna have 30% venture, 20% privateequity, 15% in hedge funds, private credit,
(20:20):
etcetera.
And then the way that I would leverage my moneyis I would be the anchor check for these
strategies.
I would go in and let's say in venture, Idecide my strategy is venture fund of fund.
I would go out and hire one of the top fund offund per people out there in the ventures
class.
I would say, come in, build this franchise forme, I'm the first anchor check.
(20:40):
Then I would go out and do that in privateequity.
Maybe in private equity, it would be more dealby deal, but same thing.
I will backstop these investments and so on.
Is that oversimplified or is that how familyoffices can leverage their capital while also
staying consistent with their own investmentobjectives?
It's a little oversimplified because if you arebacking an individual to go create a fund,
(21:06):
that's different than having a team in housethat you kind of get to know, see their
strengths, and then other people's money comesin.
And so what I mean by that is, many familyoffices, the patriarchs and matriarchs are
lonely and the CEO of the family office arelonely.
(21:28):
Once they meet each other, they're so excitedto have people they can talk to because it
feels really silly when you've never been inthe business of wealth to talk about money with
other people.
But once you realize it's a business and youcan talk about it, you start to say, Hey,
David, I did this great deal.
My team is amazing.
They keep buying this great real estate.
(21:50):
And then other families are like, Can I get inon that?
And so you start by kind of co investing a lotof times.
And then eventually when you realize you have adecent track record of doing it, then you might
say to said young individual who's been doingthe real estate, you wanna go raise a fund
around this with family office money?
(22:11):
Here are five friends that I think would beinteresting.
Let's come up with economics that work for youas well, and then you go do it.
That's that is the more likely scenario.
However, there are other families that say, Idon't wanna have a huge team, but I wanna get
into the business of lowering my costs byhaving other people pay for part of my team.
(22:36):
And those people go out and identify, like yousaid, here's a kick butt woman that wants to
invest in the tech space.
Let's call her Carol.
Hey, Carol.
I'll back you and give you seed money and youcan go raise a fund and we'll run it out of my
family office.
That's a different model than the first onethat's more natural.
(23:00):
So one is more organic and the other one ismore kind of from from the beginning of your
thinking from a fund perspective?
And I think, you know, the people that do thelatter tend to be people that made their money
in financial services.
So, you know, there are a lot of billionairesthat have been investors all their lives and
(23:21):
they get the whole, cost structure andeverything else better than anyone.
Those investors are the ones I see startingtheir family offices almost more like a search
fund model where they back a couple greatpeople and say, I'm gonna pay your salary in
this, go raise money and I will take GPinterest in your fund.
(23:43):
Those people are more qualified to monitorthese kind of younger uprising, investors than
people that have never been in the investmentfield.
One of your unique vantage points is you teachthis class at Harvard Business School, and you
get to see these these gen two, gen threestudents in your classroom every day.
(24:04):
You get to really know them.
They work on projects.
Talk to me about the psychological aspectsbetween gen one and gen two or maybe gen two
and gen three families, and how do those playinto the dynamics of the family office?
Oh gosh, do we have twenty four hours?
Because one of the things that families arefamous for never talking about is money.
(24:26):
And so the the irony here is I see I know somany of my former students that had very
qualified investment careers somewhere beforebusiness school.
And they go to business school and theirparents say to them, let's set up a family
office.
And so they come into my office.
They're all excited.
(24:47):
We're gonna set up a family office, and I'mgonna be an investor with my parents.
And I'm like, great.
How much money do you have?
I have no idea.
I'm like, what do you mean you have no idea?
Well, we don't talk about that.
Well, how do you know if you have the rightamount of money to set up a family office to
execute on the strategy that you want?
Well, I don't wanna ask them how much money Ihave.
(25:09):
They have I'm like, okay.
Well, would you go to another family office andtake a job without knowing how much money they
have?
Absolutely not.
And so the first thing is in order to havegeneration one to generation two to generation
three family offices, you have to talk abouthow much money you have.
If you're trying to recruit your daughter tojoin your manufacturing company, you start
(25:35):
with, we have this met this much in revenue andyour targets to grow.
There's no hiding it.
Something about the money makes it difficultbecause parents feel like talking about money
with their children might lower theirmotivation and or, lead to different types of
bad behavior.
(25:55):
It it makes no sense.
People guess.
They they kind of figure out what people have.
They should just talk about it.
So number one, my issue is that.
The second thing is that when you're creating abusiness that's about money, everyone always
thinks it can just end any minute because youdon't sell it.
(26:15):
You just stop.
Well, it's so wrong because so many of yourpositions are long term or you might own
businesses.
Whereas if you own a business together, familymembers don't feel like they can just walk away
because they feel like, well, they might haveto sell it and they're all these employees.
And so the thing about generation one togeneration two succeeding in the family office
(26:37):
space is treating it like a business,understanding it can't just be shut down
tomorrow.
It's not all cash.
And so you have to learn the roles and theresponsibilities that different people have.
And then the third thing about the generationtwo to three is we don't talk about money, but
we also don't talk about death.
(26:58):
And so we don't talk about what is thesuccession plan for both the money and the
employees if something happens to the matriarchand patriarch.
And so unlike other businesses where theretends to be a CEO succession plan and a board
governance plan and all these other things,which by the way are hard to do.
(27:20):
We don't do any of it in the family officeside.
And so you have teams of people running moneythat don't know if the matriarch and patriarch
die in The U S do we owe 50% in taxes?
Does our business go from 2,000,000,000 to1,000,000,000 overnight?
Does our business go from 2,000,000,000 to1,000,000,000 and then to four owners, meaning
(27:48):
mom and dad are up here with the 2,000,000,000.
If they haven't structured things right, theydie.
It goes to 1,000,000,000 and then it's divviedup between their four kids.
So now you have four kids with $250.
Are they required to stay together in theestate planning or can they leave?
So do you suddenly have a team that is at thecost center of 2,000,000,000 that's now
(28:13):
managing $250,000,000 because there's not beenthe right planning put in place for the family
unit to stay together.
So it's an entirely different succession set ofissues than it is in a different operating
company.
In many ways, it's it's pretty cruel.
It's like clipping the wings of the kids andthat they're waiting around not knowing so they
(28:36):
can't pursue something else.
And it's the previous generation's reluctanceto have those difficult conversations that
leads to significant difficulty in their kids'lives.
It's I mean, how often do you talk about moneyin your own family or death in your own family?
It's you know, you don't need to be a wealthyfamily to not talk about these things, but
(28:59):
they're compounded when there's great wealth.
Me me and my partner and even me and my fiance,we talk about the step up in basis and death.
We think it's a great, great tax strategy.
So I'm a little bit different.
Last time we chatted, you really surprised me.
You said that the parents were more responsiblefor the difficult dynamics between the parents
and the kids.
And I had always thought it was the kids, kindof the spoiled rotten kids that are responsible
(29:23):
for that.
Double click on that.
Why is it that the parents are the ones thatare typically creating these problems?
I'm I'm so excited that you're giving me theopportunity to say that the rising gen are not
all spoiled brats because they're not.
They are really good people and I'm betting onthem.
I'm betting on them because they're gettingeducation, they're asking questions, they're
(29:46):
trying to get training.
The parents are more responsible because theycreate a dynamic of what's appropriate to talk
about at home.
And I have parents that I work with that say,I'm gonna talk to my children about wealth when
they're in their thirties.
I'm like, in their thirties?
(30:07):
Like, do you think they're blind?
They're they're on your private plane.
They're on your yacht.
They they see the the wealth, but you're notgonna talk to them about it when they're young.
If you start talking to your children aboutwealth, first of all, how hard it is to save
money and talk to them about theirresponsibility, not what they're getting, then
(30:27):
they're gonna be productive citizens.
The when we run into problems is when parentsjust give children a little bit of money along
the way and don't ever talk to them about aresponsibility.
And then the child feels this inadequacybetween the generation one and generation two,
(30:49):
and they just kind of go off on their own.
I mean, by all means, are there spoiled peoplein the world?
Yes.
But they're not all wealthy.
There are a lot of other people that can behavein a spoiled way and whatnot.
But when I believe when you share what theresponsibility is of anything with people and
(31:10):
you make them feel included, they rise to theoccasion.
And so I don't think all families should leaveall the money that they've created to their
children, but I think they should educate themon the responsibility and the options and the
great things they could do with that money.
I love my students that come in and have greatdreams of having huge social impact and that
(31:35):
they have been educated for generations aboutthe wealth that their family has created.
And they, from a young age, talk to the familyabout, I wanna use some of that wealth to
create clean water in India, to bring, youknow, telephones and things to rule Turkey.
And so why not embrace them early so it's partof everyone's plan?
(31:58):
When you wait too long, that's when badbehavior starts.
That's why I think it's the parents'responsibility.
All things being equal, I rather work with theGen one versus the Gen two individual.
Typically the Gen one, he or she is just selfmade, has similar values to me.
In Gen two, probably if I had to put a number,80% of the time there's an entitlement, maybe
(32:21):
20%, they're they, you know, are exactly liketheir parents.
They work hard.
Their parents made them work.
But 80% of the time, they are extremelydifficult to work with, at least from the
business context.
Now you might argue those two theories might bealigned in that the reason that they're spoiled
and difficult to work with is because of badparenting.
I give you that.
But isn't there something to that in that thisthere is almost a form of entitlement in gen
(32:45):
two, even if it's not their fault, just growingup with money leads to this kind of behavior
versus gen one is more able to align withpeople.
And gen one has learned the skill set ofinfluencing people and partnering with people
to do the things that they wanna do versus gentwo kind of has this, like, do this for me
because I'm x y z name?
(33:05):
I think, you know, we could turn it around andsay, you love founders.
And so, like, I love founders.
I am infatuated with how they came up with thisidea, how they pursued it, and how they were
successful.
Now most of the founders that I've met hadnothing to lose.
(33:30):
And so their entire thing was I'm gonna createthis great shoe company.
And they didn't have any money to begin with.
Many of them are immigrants and they're justgritty, hardworking, and you love the story of
their family business or whatever they did.
Now, many g twos are viewed as not as gritty.
(33:52):
And so you already kind of lose the interest intheir story.
However, I'd argue that many g twos and onwardhave a responsibility, a guilt, and a
nervousness of losing what g one created.
(34:12):
And that is where, they might behavedifferently.
They might not take the same risks.
You might not be as attracted to them becausethey're not just, like, all in.
And that's because many of them feel thisresponsibility to carry on this legacy.
This is where our opportunity exists.
If g ones would remind and continue to teach gtwos that the only reason we even call them a g
(34:38):
one is because they were an entrepreneur.
Our family is built on entrepreneurship.
So you g two, you might have some funds Ididn't have, but we're all about growth and
entrepreneurship.
Get out there, do something.
And it can be something for profit, not forprofit, but if if we better keep being
entrepreneurs each generation or whatever wedid in g one is gonna be gone by g three.
(35:03):
And so I think it's it's more the story.
Like, I am consistently incredibly attracted tothe story of g one because I wanna sit around a
fire with a bottle of wine and hear how theydid all this.
But I can tell you, I've met a lot of g twosthat were raised in the household with
(35:24):
entrepreneurship as the backbone, with fiscaland moral, it just reinforcement, and they are
back to be entrepreneurs.
They're just as good as g one.
But they will never be g one.
And so, you know, what's the life of aninheritor?
(35:44):
Is it being an inheritor mean inheriting moneyor does it you can also be an inheritor that
inherited responsibility.
But then the third thing is you can be aninheritor of a legacy.
And so it's daunting to inherit a legacy.
(36:04):
There are a lot of people that inherit thelegacy of what g one put out there without any
money.
And so let's give g two and g three andeverybody else a chance, but get out there and
do something.
And I'm with you.
Like, if they're lazy, they're it's the same asany other lazy person, and we all see tons of
those.
But this if we don't start betting on therising gen, we're in a whole world of hurt
(36:31):
because this wealth transition that's cominghas the opportunity to transform our world in a
way that nobody's ever seen.
And so let's give them the tools to do it.
You mentioned the g two should go out and dosomething and fail.
I'm reminded of the Jeff Bezos quote, which isI rather have a child with nine fingers than a
child that does not have resourcefulness.
(36:53):
I completely agree.
And I also say fail fast.
And so if you go back to what do we not talkabout at home, we don't talk about money, we
don't talk about death, we also don't talkabout failures.
And so when we raise our families and the onlytime we talk about anything is when they won
the race or they got an A, that's a problembecause you don't always win every race.
(37:17):
My father used to say that when you wereskiing, if you didn't fall, you weren't getting
better.
And you know, so fall, learn because you pushedyourself harder and then get up.
And so there has to be room in life forfailure.
And I'm a mother of three.
I also struggle.
I want to keep celebrating failure becausefailure is putting yourself out there and
(37:41):
trying something.
I mean, failure could be going and doing animprov night and nobody laughs.
Well, at least you tried.
So you have to try.
And we as parents have to give the safe spacefor what is perceived as failure.
Otherwise,
we're
gonna get mediocracy because no one's gonna putthemselves out there.
As I mentioned, you have this really greatvantage point in that you're now approaching
(38:04):
close to a thousand students from gen one, gentwo, gen three, and people that wanna work in
family offices, and you see them intimatelyyear one from year two.
Is being a centimillionaire or a billionaire,is that a curse that these families have?
Would they be better off just, you know, beingmoderately wealthy and not having to deal with
these dynamics, or is it still a blessing inyour in your opinion?
(38:27):
I I I view being incredibly wealthy as anopportunity, not a curse and not a blessing.
I think it can be a curse if you don't chooseto use the opportunity the right way.
And what I mean by that is if you're afraid ofthe money and it makes you afraid of your own
(38:47):
shadow and you never do anything that you loveor wanna try because of it, then it is probably
a curse.
But I look at it as an opportunity to make tochange the world.
And changing the world does not mean that Iwant everybody to give all their money away.
It means take that money and create more jobs.
(39:08):
Take that money and be innovative and, youknow, rise people up.
I mean, there's so many ways to have impact andfamilies by nature are better stewards of
businesses than most.
They care for their community.
They care for their employees.
(39:28):
In the families I work with, during COVID, notone of my families laid one person off.
They just took they take care of their own.
So if you could take this wealth and keepinvesting it in the people and the community
and businesses, then it's an opportunity, not acurse.
Where it's a curse is if you have it somewherewhere nobody can access it, nobody understands
(39:53):
it, and it you know, it's used as a weapon.
If you don't do this, I won't give you that,then it's a curse.
To use a Gen Z term, it's it's main playerenergy versus NPC, a non non playing character.
So you're walking around the world instead ofjust being beholden to circumstances and having
things happen to you, you go out there and youshape the future for your family and for
(40:17):
others.
And, yes, some of the times, maybe most of thetime, you fail and you learn, but you're
constantly developing yourself in pursuit ofyour goals of making the world a better place,
making your family better off, all these thingsthat family offices have as their north star.
Absolutely.
And you know, just to kinda double click againon g one versus other generations, the the
(40:43):
prior you know, g one holds a good amount ofresponsibility because they typically set the
stage for what can be discussed.
But g two, g three, g four, like step up, askthe difficult questions.
You know, if you sit there and wait forsomebody to kind of tell you everything, then
shame on you as well.
(41:04):
It it needs to be a conversation.
And if you're a part of the the dialogue froman early age, then it works.
If you're afraid of g one, then maybe there's areason.
I love that there's a concept called extremeownership by Jocko Willock, and he explains it
in a battlefield.
Battle could a battlefield could be verychaotic, and at any point, it's not like a
(41:28):
movie where everybody's going in in rows andeverything's predictable.
There's bullets flying, and at any point, youmight have 9090% lack of control on anything.
But even then, you have this 10% agency, this10%, like, how you move around, what angles
you're you're going so that you're not sniped,like, how you communicate with your battalion.
(41:50):
So even if 90% of what you do has no is set instone and you can't change, you still could
focus on that 10%.
And even if you're gen two and you have adifficult parent, which, almost by definition,
these founders are extremely difficult, youknow, unchangeable characters.
You still have that 10%.
(42:10):
You could focus on that and how do you change?
How do you bring up those tough conversations?
How do you make your family better even andmaybe even especially if it's in a difficult
dynamic.
Absolutely.
And persistence is an admirable trait.
And so when you said you'd always rather bewith a G1, I bet there will be some G2s, G3s
(42:32):
you'll meet that are persistent and get thingsdone that you'll like just as much as founders.
But we need more of g two to have thatpersistency.
And, you know, you referenced at Harvard that Ihave the opportunity to work with the rising
gen.
I also have the opportunity to work with theirparents because we have exec ed programs.
(42:53):
So I get to see the parent in the room with thechild for classes, and that's when it's really
amazing because when you see a parent that islistening to another two talk and they're
shaking their head and afterwards they're like,that's just ridiculous.
He should have educated his son on blah blahblah.
And then I'm looking at this one going, you'redoing the same thing.
(43:15):
You're also not sharing that information.
And so when you put them all together and youstart talking, that's when people start
changing.
And so back to where we started, you know,being a founder is lonely, and many of family
offices are started with founder generationmoney.
(43:36):
We need these family offices to start speaking.
And unlike the places they're competing with,they're not competing with each other as much.
And so, like, they can they can collaborate.
And so hopefully, you'll invite me back on thisin five years and we'll see family offices
outperforming all of the other asset categoriesbecause they're gonna finally get it right.
(44:00):
But right now, we're still on the hamster wheela little bit.
Give me some low hanging fruits.
What is something that gen one or gen twofamily members could do today in order to
significantly increase their chance of success?
The the first thing they should do is make surethey really have a mission for their family
office.
The second thing they should do is make surethat they have a business plan with metrics and
(44:24):
that they hire the right people.
What I would say for anyone starting a familyoffice, do not hire your best friend or give
the job to somebody you know because you trustthem with your money.
That is so different than trusting them to growyour money.
You need to have the patience to find the rightpeople and put a professional team in place.
(44:48):
Also low hanging fruit, it is not a place forfamily members that are unemployable elsewhere.
Family offices are not a place for unemployablefamily members.
I can't say that enough.
And you need to understand you're creatinganother business.
(45:09):
If people listen to your podcast and say, oh mygod, I didn't wanna create another business.
Why do I really is family office really anotherbusiness?
Yes.
And if you don't want it, shut it down.
Put your money, outsource it to the wealthmanagers, and hire one person to do concierge
services for your family.
But if you've put a team together and they'rein charge of all your money, it is another
(45:32):
business.
And so people need to understand that.
I would posit that those gen one family membersthat don't want another business should go take
three months off, go on go on a beach, and thencome talk to us because I suspect in three
months, they will be ready.
Probably in one month, the the successful oneswill be ready for their for their next business
and for their next adventure.
(45:53):
Hopefully.
And if they took that three months on thebeach, they realized they didn't wanna hire
their two best friends to do it because theirtwo best friends should be their two best
friends, and let's go put a business plantogether and hire the right people.
It's almost like this advice when somebody getsa huge liquidity event.
They say, put it in the bank or put it in the Sand P 500 or whatever equivalent for thirty
(46:16):
days.
Do nothing.
The best thing you could do for thirty days isdo nothing.
Let kind of the endowment effect take place.
It's a psychological phenomenon that you're nowconsistent with your new amount of money, and
just relax and don't do anything crazy becausetypically in those thirty days, people do some
make some outlandish purchases and make somepoor investments.
(46:38):
They they do, David, and that's going back tothe go slow to go fast.
And, you know, most of these people wereoperators of something they loved.
And so suddenly, if they sold completely andthey simply have liquidity, they're twiddling
their thumbs because they're used to being ontwenty four seven.
(46:59):
And what do they do?
They buy another business.
And so, you know, take a minute, understandwhat you wanna do, and then do it.
Many founders of, family offices that we setup, we give them like a slush fund to play with
because they want to go buy a Dunkin' Donutfranchise, or they want to go buy something
(47:20):
that they can tinker with because they don'tenjoy the business of money going up and down.
And so that's why you have to have the mission.
And if the mission is to make more money, saidfounder has to remember to make more money, we
have to deploy it.
And so, you know, all of them, I love the idea.
Three months on the beach, go do that, and thenlet's talk.
(47:43):
But that's not what happens.
They get the money and they start investing,and that's why we call it bottom up instead of
top down.
This has been a master class on family officeinvesting.
How should the audience keep in touch with youand keep track of everything that you're
working on?
Oh, well, that's very flattering.
I mean, I'm very easy to find, through theHarvard Business School website, and you can't
(48:06):
miss me there.
And then also through Wingspan, which is myprivate practice that advises families.
And what I will tell all of you that arelistening to this, we have yet to meet a family
office that's hired us, that doesn't need to becompletely restructured.
And so I've challenged, come find me and showme one that doesn't need to be restructured
(48:30):
because to date, everyone we have worked withneeds a complete restructuring.
And, that that's something we need to change.
We need to start getting it right from thebeginning.
Great.
Well, thank you, Christina.
Appreciate you jumping on and look forward tositting down in Boston and New York very soon.
Come see me.
Come to class.
I would love that.
Thank thank you for seeing you.
(48:51):
Thanks for listening to my conversation.
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