As recent headlines flooded in about another meltdown, we have a sense of deja vu. Like Madoff and the resulting impact on hedge funds many years ago, an unfortunate and highly publicized collapse will lead to more operational scrutiny for family offices. Over-leveraged positions, especially in illiquid investments, can lead to significant losses.
There are compliance and risk management lessons to be learned from these recent headlines. At SS&C, we help family offices and their family members achieve transparency. This transparency enables the family office to understand their leverage/exposure and gives the individual family members insight into their investments. The family office should have transparency into its assets and the family members should have greater access to their data. There is a presumption that firms save money by doing things in-house instead of hiring an independent administrator. Financial firms of all types have learned there is no alpha in doing operations internally—only cost and risk. In the future, we believe we will see a significant change in the family office operating model.
The core capabilities of most family offices revolve around wealth and investment management. Family offices are very good at dealing with wealth issues from taxes to paying bills and making investment decisions. Most family offices do not have the technology or the expertise to provide transparency in trade entry, data management, valuation verification, accounting, risk analysis, tax analysis and reporting. As family offices grow and increase assets and invest in more complex assets, the risk exposure also increases. Family offices tell us they can manage a small amount of money on spreadsheets and essential accounting tools but run into challenges because the processes cannot scale from hundreds of millions to billions of dollars in complex investments and strategies.
SS&C is prepared to help family offices during this paradigm shift. Family offices are vital to the flow of money in the financial system. Will there be more scrutiny on family offices from the SEC? Most likely, yes. More importantly, we face a moment when risk has to be delineated both for each family office's benefit and for the financial system's integrity. SS&C has unique, integrated, transparent capabilities in trade entry, data management, valuation methodology, valuation verification, accounting, risk and tax analysis, and cybersecurity. SS&C has helped family offices address these complex issues. Our solutions are integrated and used by over 18,000 firms.
To learn more about SS&C's solutions for family offices, visit our SS&C Private Capital Group product page or contact us.
Alternative Investments, Fund Administration