What it is
A family office is a private organization that manages the finances and related affairs of one family (a single-family office) or of several families (a multi-family office). Many handle investing, reporting, estate coordination and risk oversight in one place.
A private fund is a pooled investment vehicle that is not offered to the general public. It is typically offered under exemptions from registration, such as SEC Rule 506(b), which does not allow general solicitation, or Rule 506(c), which allows general solicitation but requires that all purchasers be accredited investors and that the issuer take reasonable steps to verify that status.
Many private fund investors must be accredited investors under SEC Rule 501(a). Categories include individuals who meet the income or net worth tests in the rule, holders in good standing of Series 7, 65 or 82 licenses, and knowledgeable employees of certain private funds. Since the August 2020 amendments, spousal equivalents, entities and family offices with over $5 million in investments or assets, and RIAs and exempt reporting advisers also qualify. Eligibility is determined under the rule and the offering documents, so confirm yours with your own licensed advisers.
How it’s traditionally been approached
Families have often built private fund allocations gradually. Many begin with an investment policy that describes goals, time horizon, liquidity needs and risk tolerance, then decide how much, if any, belongs in private markets alongside public holdings.
Manager selection has commonly involved due diligence: reviewing a manager's background, strategy, team, fees, terms, reporting and operations, and speaking with references. Some families do this in-house, some hire consultants, and some rely on their RIA or outside counsel and accountants.
Some family offices and advisers use a fund of funds, which pools capital into several underlying private funds, as a way to access multiple managers through one vehicle. Others invest directly in individual funds or alongside managers. Each structure has its own layers of fees, transparency and complexity, and none is right for everyone. RIAs serving clients who meet eligibility requirements often follow a similar process within their fiduciary duties and compliance frameworks.
How the right fund manager may help
The right independent fund manager may help a family or adviser understand how a strategy works, what the fund documents say and how the manager thinks about risk. A good conversation can make the trade-offs clearer, but it does not remove them, and nothing here promises any outcome.
A first conversation is usually an exchange of information. Expect questions about your goals, eligibility status, time horizon and liquidity needs. Expect to receive the fund's offering documents directly from the issuer, which are the only place an offering is actually made.
Useful questions to ask include: How is the manager compensated, and what fees apply? What are the lock-up and redemption terms? How are conflicts handled? What reporting will arrive, and when? Will I receive a Schedule K-1, and how might that affect my tax preparation? Ask your own attorney, accountant and adviser to review the documents. The Hastings Fund is an independent directory and does not recommend, endorse or rank any manager.
The bigger picture
Decisions about family wealth touch more than a spreadsheet. They can affect sleep, family relationships, and a sense of security and purpose. Taking time, involving the people who matter and being honest about how much uncertainty feels comfortable can protect peace of mind. No approach is better or worse in itself; what matters is fit with the family's circumstances.
Illiquid commitments can last for years, so it helps to consider how you would feel if the money were unavailable when needed. Some people find it useful to talk with a counselor or wellness professional about money stress, and Providers.plus can help you find one.
Keep in mind
- Private fund investments are speculative and illiquid and can lose all of their value.
- Past performance does not guarantee future results.
- Nothing on this site is an offer to sell, or a solicitation of an offer to buy, any security; any offering is made only by the issuer through its own offering documents.
- Tax treatment, including how QSBS under Section 1202 or K-1 reporting may apply, depends on individual circumstances, so consult your own licensed legal, tax and investment advisers.
Guides in this topic
Fund manager types
Frequently asked questions
What is family office private fund investing?
Family office private fund investing is when a family office allocates part of a family's capital to private funds and selects the managers who run them. It often sits within a broader plan covering goals, liquidity and risk. Private fund investments are speculative and illiquid and can lose all of their value.
How do family offices select fund managers?
Family offices commonly use a due diligence process that reviews a manager's team, strategy, fees, terms, operations and reporting, along with references. Some work with consultants, attorneys and accountants. The process varies by family, and it cannot eliminate risk.
Can a family office be an accredited investor?
Yes, in some cases. Under SEC Rule 501(a), as amended in August 2020, a family office with over $5 million in assets under management that was not formed to acquire the securities offered may qualify, as may certain family clients. Your own legal adviser can confirm whether you meet the rule.
How do RIAs use alternative investments for clients?
RIAs may consider private funds and other alternatives for clients who are eligible and for whom they may be suitable, within their fiduciary and compliance obligations. They typically evaluate liquidity needs, costs, complexity and diversification. Whether any allocation makes sense depends on each client's circumstances.
What is a family office fund of funds?
A family office fund of funds is a pooled vehicle that invests in several underlying private funds, or a family's approach of using such a vehicle to reach multiple managers. It can add diversification of managers but also an extra layer of fees and less transparency. Read the offering documents and consult your own advisers.
What is the difference between Rule 506(b) and 506(c) for private funds?
Rule 506(b) offerings cannot use general solicitation, while Rule 506(c) offerings may advertise publicly. In a 506(c) offering, all purchasers must be accredited investors and the issuer must take reasonable steps to verify that status. The issuer's offering documents describe which rule it relies on.
Educational resource. The Hastings Fund shares general information and connects people with independent fund managers. It is not professional advice. Talk with a qualified professional about your own situation.