Family office investing occupies a distinctive space in the wealth management landscape – and Toby Watson’s perspective on the questions it raises is informed by direct experience of how sophisticated private capital operates across different investment structures and market environments.
The family office model has grown considerably in prominence as wealthy families seek greater control, transparency and personalisation in how their assets are managed. But building and running an effective family office raises questions that are considerably more complex than they first appear. Toby Watson, whose career in international finance gave him direct exposure to how sophisticated private capital is structured and managed at the highest level, brings a well-grounded perspective to the questions that matter most in this space.
Family offices have become an increasingly important part of the global investment landscape, managing substantial pools of private wealth across a wide range of asset classes and structures. Their growth reflects a broader trend towards greater sophistication and autonomy among wealthy investors who want investment management genuinely tailored to their specific circumstances. Toby Watson, whose time at Goldman Sachs involved working with some of the most sophisticated private and institutional investors in the world, developed a precise understanding of what effective family office investing requires – and what distinguishes the structures and approaches that serve families well over the long term from those that prove less durable in practice.
The Family Office Model and How It Works
A family office is a private investment and wealth management structure established to serve the financial needs of one or more wealthy families. It differs from conventional wealth management in the degree of control, customisation and integration it offers – managing not just investment portfolios but the full range of financial, tax and legal matters relevant to the family’s wealth. Toby Watson considers the governance structure of a family office one of its most important and most frequently underappreciated features.
The two principal models are the single family office and the multi-family office, which provides similar services to a select group of families through a shared platform. Toby Watson’s experience suggests that the multi-family office model, when well-structured, can offer families access to institutional-quality investment management at a cost that a single family office of modest scale cannot match.
The most common governance mistake is the failure to separate the investment decision-making process from family dynamics. When investment decisions are influenced by family relationships rather than a clear investment framework, the quality of outcomes tends to suffer. Establishing a robust investment governance structure – with clear decision-making authority and appropriate external oversight – is one of the most valuable things a family office can do.
Toby Watson on Investment Strategy for Family Offices
Long-term wealth preservation requires a different framework – one that explicitly accounts for the multi-generational time horizon, the tax and estate planning dimensions of investment decisions and the family’s specific liquidity needs. Toby Watson, whose years at Goldman Sachs gave him direct exposure to how the most sophisticated private investors approach these questions, considers the integration of investment strategy with the broader financial planning needs of the family a defining feature of genuinely effective family office investing.
There is no single asset allocation framework that suits all family offices because the appropriate allocation depends on the family’s specific circumstances – their liquidity needs, tax position, time horizon and tolerance for illiquidity. Toby Watson’s approach emphasises starting from the family’s actual objectives and constraints rather than from a generic institutional framework, and building a genuinely tailored allocation rather than adapted from a standard model.
Illiquid investments can play a valuable role in a family office portfolio, offering return premia and diversification benefits not available in public markets. Toby Watson’s analytical background gives him a precise understanding of how to assess illiquid investments and size them appropriately. Among the key considerations are:
- Ensuring that the illiquid allocation is sized so that the family’s spending and liquidity needs can be met entirely from liquid portfolio components
- Maintaining a realistic assessment of the true time horizon for illiquid investments, including the possibility that exit timelines extend beyond initial projections
- Building sufficient diversification within the illiquid allocation to avoid concentration in a single vintage, strategy or manager
Toby Watson on Governance, Succession and Long-Term Continuity
Effective investment governance requires a clear investment policy statement that articulates the family’s objectives, risk tolerance and decision-making process. Toby Watson considers this the foundation of good family office governance – not as a bureaucratic document, but as a practical tool that ensures investment decisions are made consistently and in accordance with the family’s long-term interests rather than short-term market sentiment.
External advisers can add genuine value by providing access to capabilities and investment opportunities that an internal team of modest size cannot replicate. The analytical rigour that Toby Watson developed during his time at Goldman Sachs working across institutional and private investor relationships gives him a nuanced view of how to structure external adviser relationships to maximise their value while maintaining appropriate governance and oversight.
Multi-generational wealth preservation requires not just sound investment strategy but effective governance and communication across family members with different relationships to the wealth. Among the principles Toby Watson considers most important are:
- Establishing clear governance structures that separate family decision-making from investment decision-making, with appropriate professional oversight
- Investing in the financial education of younger family members so they develop the knowledge to be effective stewards of the family’s wealth over time
- Maintaining a long-term investment framework that is robust to changes in family circumstances and the inevitable evolution of family priorities across generations
