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As the family office principal, you likely do not live in the weeds of fund documents. However, you do need clarity on the handful of issues that most directly affect your wealth, influence, and legacy. You need a clear picture of alignment, liquidity, reputation, and governance, plus confidence that your team will escalate “red” issues to you.
Do the sponsors make money only when you do? Watch for fees, expenses, or affiliated services where the sponsor received economic benefits even if returns lag. Ask your team about perceived misalignments.
Hedge funds can often sequester assets in side pockets, whereas private equity and credit funds may be able to call capital unpredictably, at best. Ensure your office maps cash draws and likely distributions against your liquidity needs (e.g., philanthropy, lifestyle, new ventures).
Many larger sponsors use affiliated servicers, and many sponsors trade positions between funds. Some of the related conflicts are routine, but poor handling can cause regulatory or reputational fallout. Ask your team to summarize any material concerns.
A position on an investor advisory committee (limited partner advisory committee, or LPAC) and robust reporting provide more of a “seat at the table.” Even if you delegate, insist on visibility into material conflicts, valuations, and expenses. If you are represented, ensure that you are adequately protected under the fund documents.
Exceptional family office executives expect to have their interests aligned with those of the family. Thoughtfully structured participation – such as co-investment rights or performance-linked incentives – can help attract and retain talent and ensure long-term alignment.
Personal prestige and capital can unlock concessions from sponsors. Do not intervene on every point, but be ready to call the sponsor directly on the issues you care about most.
Require your team and counsel to deliver conclusions in plain English, e.g., distinguishing market standard, aligned versus tolerable but monitor versus unacceptable risk. Ask for bottom-line recommendations; invest, negotiate, or walk away.
When hiring outside counsel, look for lawyers who have worked on both the sponsor and investor sides. They will know which terms really matter, what is achievable, and how to secure protections without wasting time on the immaterial.
