Recently, George Soros told investors of his hedge fund that he is returning around $1 billion and turning $24.5 billion into a family office. One of the main reasons Soros is turning his family worth into a family office is because hedge funds will now be regulated under the Dodd-Frank financial reform. The regulation forces hedge funds to register with the SEC by March of 2012. Compliance is a subject everyone in the financial industry knows about. If anything I would argue the financial services is one of the heaviest regulated industries. The argument for Soros going with becoming family office is family offices don’t have to register with the SEC which is somewhat weird because of the way family offices are run. Family offices are in essence financial concierge for family with above $100 million. The costs to run a family office can run around 3% of net worth or $3 million per year. Family offices are no picnic. People who have earned amassed sums of wealth are usually not the easiest people to work with. My theory on why these people are not easy to work with is because the people that have earned a lot of money have done so by usually having high standards, attention to detail, and hard work. These people couldn’t get rich by not caring (unless they inherited the money).
Usually they are created once people realize they have a lot of money and have a lot to manage. The family office pays all the credit card bills, manages investments, teaches the family about philanthropy, and even plans travel arrangements. According to a Wharton Study as of 2008 there were only 1,000 family offices. Nearly half of these family offices had over $1 billion.
What is strange however is why family offices would be exempt from registering with the SEC? I would imagine family offices have access to personal of funds of people with loads of money. This could give way to serious fraud or embezzlement on the advisors part. Maybe the SEC thinks that well these people have enough money so we shouldn’t really worry about them.
What I find the most interesting is that George Soros who talked about how he wanted regulations put on banks and the financial sector is now trying to dodge those very same regulations he was in favor of. This reminds me of people who are in favor of higher taxes yet never voluntary pay higher taxes. People can always voluntary pay the Clinton tax rates if they want to or send their money to IRS. It is interesting how what people say and what they do or completely different things.
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