John C. Heaton, Joseph L. Gidwitz Professor of Finance at the University of Chicago Booth School of Business, recently taught the school’s first course on family offices, part of the Family Office Initiative the school launched in fall 2024. He discusses what students want to learn about family offices — and fruitful areas of ongoing research in the field:
What is the goal of the Family Office Initiative and the course on family offices?
One purpose of the initiative is educational: to give our MBA students exposure to the family office space. We have a reasonable number of students who will be returning to their family business or family office. And we hope our students will get to the point where they will be thinking about a family office — a lot of alumni have been quite successful in entrepreneurial activities.
Another purpose of our Family Office Initiative is networking — for students, alums and other people — without any axe to grind or any commercial component to the endeavor. We are having a summit in May for family office professionals with academic speakers and roundtable discussions. The objective is to have a place where we can have a more intellectual, academic kind of discussion about this space.
What did you cover in the family office course you developed?
It was a half-quarter class that gave a broad overview of family offices. I gave an introduction, then talked about topics like governance, communicating with the family, investments, technology and philanthropy and impact investing. We had guest speakers each week.
The next step is for me to expand that class. We got good feedback from students on what we should add or expand. One set of people was pushing for more about soft skills: How do families manage transitions? How do you effectively communicate with a family? Others wanted more detail on the investment landscape, including topics like taxes and co-investing. There was not as much demand for information on topics like trusts and estate planning — these are MBA students, not law students.
What is the typical background of a student who chooses to take this class?
I think about one-third of them came from families that are already in the family business or family office space. Maybe 20% had experience in the space or at financial firms doing wealth management services. Then the rest were there because they want to understand more about family offices as they think about their careers. We have very strong entrepreneurship and finance programs at the school, and family offices are quite involved in both those areas. Some of the students are also looking at this as a potential career path — maybe not immediately, but perhaps later in their careers.
How does research on family offices fit into the broader picture of research on markets and investing?
In general, in capital markets research, there are a lot of interesting discussions about how capital moves within a market. How do prices respond to various events?
There have been a lot of studies looking at very easily accessible data, such as mutual funds, for example. But simple public equity holdings are less than a majority of holdings. What about investments by high-net-worth individuals? Researchers are starting to get access to data provided by service providers that do intermediation — completely anonymized data — to look at that.
They are trying to understand questions like: How do family offices and high-net-worth individuals respond to shocks? How are they organizing themselves? That’s something we don’t really know because there’s never been really great data. Then, once we have a better lens into what they’re doing [the question becomes]: How well are they doing? What does performance look like? There’s been a long history of doing that at a level of things like mutual funds, and a little bit on hedge funds, but very little in this space.
Something like half of equity is privately held, outside the direct financial markets. We’ve seen a movement in the past 20 or 30 years toward taking companies private. We’re trying to understand, what does that performance look like? People have been using similar data to look at limited partners, and how their performance has been. Now, data is being used to think more broadly about what high-net-worth people are doing through family offices — though I should be careful: It’s hard to identify the family office per se, because the data is very anonymized.
Why is this data becoming available now?
Because of technology, it has become easier for family offices and high-net-worth individuals to hire back-office providers to manage their positions and do their accounting. Those providers are the ones that are then providing the data. I think they have an interest in understanding how they are doing, as a service to their own clients.
This has been going on for a while in the private equity space. What’s happening is that technology is allowing more private positions to be amalgamated through a service provider, so the data is becoming more available. The service providers we’re talking about are the ones doing the data. They’re providing services like accounting and taxes in one spot, so they’re seeing the whole landscape.
I think it’s in everyone’s interest to understand this landscape better.
What is the goal of the research being conducted using this data?
The academic goal is probably twofold. Following progress that has been made in studying the performance of limited partner positions in private equity, researchers are examining the general performance of investments held by high-net-worth individuals and households.
There’s also significant interest in whether high-net-worth families or individuals panic in certain situations. How fragile are their positions? You’re trying to understand, if something bad happens, does this capital move quickly or not? You often hear that family offices have a long-term perspective, but is that really true? And as these positions turn over to younger generations, what could happen?
There are a lot of big picture economic questions that we’d like to better understand. This is a big chunk of total capital that’s kind of operating in this black box, and we don’t really know how they’re going to respond to different events.
