In the last few years, Ann Dugan has noticed more Pittsburgh-area families putting together a family office, whether it’s their own or a multi-family office.
Dugan, who founded and led the Institute for Entrepreneurial Excellence at the University of Pittsburgh for 30 years, says that most wealthy families put their funds with the big wealth houses — like BNY Mellon, PNC, Smithfield Trust.
“Even though those are not multi-family offices, they do all the things that a multi-family office would do in terms of investment advice and finding the best deal returns,” she says.
The change comes from the different kind of wealth that’s being created.
When the steel industry and its suppliers liquidated as the industry was going down in the 1970s and 1980s, the big financial houses were already positioned to help those families. However, today’s liquidity has started to come from other sectors.
Choose your structure
There are two ways that wealth usually generates a family office, says Dugan, who works for Family Office Exchange, a peer-to-peer network for ultra-wealthy families and their family offices.
“One is you’ve sold the business,” she says. “The second is that the business has been so successful that you’re taking cash out of it. You haven’t left all the money in the business, and you’re not building or buying more businesses. You’re taking the money out, so all of a sudden, the family has become quite affluent. They build a big house. They might get the plane. Those are usually the first two that happen.
“Then from there they start to go, ‘OK, what else are we going to do with this family?’”
Over the past five to seven years, more Pittsburgh families have started to ask that question.
Some families get right into creating a family office, forming their own structure where they have the freedom to customize.
Others start with what Dugan calls the advisory kitchen table, where they bring in people that they trust to help them think through the development of the family and the development of the future.
Family offices also can vary widely in what they offer. They can be as simple as helping the family with investments, tax planning and estate planning, all the way to walking the dog and picking up the dry cleaning.
“If you see one family office, you’ve seen one family office,” Dugan says.
Beyond the investment strategies, estate and tax strategies, and risk mitigation, the family has to decide if it wants to create a family foundation or will the family office be involved with lifestyle enhancements and concierge services, such as managing the domestic help, helping with payroll tax compliance, or managing the travel, aircraft and boat?
Don’t ignore the possibilities that are here
No matter what the structure looks like, though, Dugan encourages Pittsburghers to be open to the region’s opportunities, which they sometimes look past.
“Who has generated the activity and energy in Pittsburgh real estate in the last 10 years?” she asks. “Out of state firms. They didn’t come from here. They were people that came from New York and Chicago and Columbus and they’re like, ‘Boy, Pittsburgh has some really interesting real estate.’”
Some buildings were in disrepair or not technologically savvy, but those out-of-towners saw the possibilities in The Strip, the North Side and the South Side.
Dugan encourages potential investors to think about the region’s natural economic advantages — such as water, research universities and an educated population.
“What you really have to think about is should you wait for somebody to come out of New York or Columbus or wherever and tell you what to do, or are you really looking at the opportunities that are here?” she says. “How do you expand upon them, put companies together?”