Investment Oversight & Manager Selection #
Investment oversight in a family office establishes disciplined governance for portfolio strategy, manager selection, performance monitoring, and risk control. A structured process protects capital, aligns investments with the family’s mission and liquidity needs, and ensures independent evaluation of external managers and direct deals.
Context & Importance #
UHNW portfolios span multiple custodians, asset classes, and jurisdictions. Family offices therefore formalize oversight through an Investment Policy Statement (IPS), an investment committee with clear decision rights, and standardized reporting across public markets, alternatives, and co-investments. Independence in manager due diligence and conflict-of-interest controls is essential when sourcing opportunities from banks or sponsors.
Core Components #
- Governance & IPS: Define objectives, risk capacity, benchmarks, asset ranges, rebalancing rules, and liquidity tiers.
- Manager Research: Source candidates, run qualitative & quantitative screens, and assess strategy edge, capacity, team stability.
- Operational Due Diligence (ODD): Review control environment, valuation, pricing sources, audit, compliance, and cybersecurity.
- Fees & Terms: Compare total cost of ownership (management, performance, carry, fund expenses) versus expected alpha or access.
- Performance & Risk: Standardize reporting (time-weighted returns, money-weighted for illiquids), factor exposures, drawdowns, and scenario tests.
- Monitoring & Termination: Set watchlist triggers; define exit protocols for strategy drift, key-person risk, or governance breaches.
Manager Selection: Step-by-Step #
- Define mandate: Objective, benchmark, risk budget, liquidity bucket, capacity constraints.
- Create longlist: Data sources & peer referrals; screen for track record quality and fit.
- RFP/RFI package: Strategy description, team bios, ownership, capacity, pipeline, risk systems, fee schedule.
- Due diligence: Investment DD (edge, process, research discipline) and ODD (controls, valuation, compliance).
- Reference checks: Former colleagues, service providers, and existing LPs; verify track record portability.
- Term negotiation: Fee breaks, MFN, co-investment rights, reporting cadence, transparency clauses.
- Onboarding: Account opening, guideline codification, data feeds for consolidated reporting.
- Ongoing review: Quarterly performance/risk review; annual deep dive; watchlist criteria & exits.
Best Practices #
- Separate strategy approval (committee) from implementation (CIO/analysts) to reduce key-person risk.
- Use liquidity tiers: daily (operating), intermediate (1–3 years), illiquid (PE/VC/RE) with pacing and commitment models.
- Adopt standardized DDQs and ODD checklists; document all exceptions and mitigants.
- Benchmark net of fees; for alternatives, combine PME/KS-PME with qualitative milestone tracking.
- Consolidate data across custodians; automate position, pricing, and exposure mapping for look-through risk.
- Enforce conflict policies when banks both advise and distribute products; require disclosure and comparables.
Common Challenges #
- Overreliance on brand over process; insufficient verification of team stability and capacity.
- Fee layers in fund-of-funds or structured notes eroding net returns.
- Inadequate ODD leading to valuation or governance surprises.
- Fragmented reporting across banks/funds; no unified factor or liquidity view.
- Slow response to strategy drift, style crowding, or drawdown triggers.
See Also #
- Investment Policy Statement (IPS)
- Strategic Asset Allocation
- Risk Management and Reporting
- Technology Infrastructure for Family Offices
