Finance

Wealthy families are spending an average of $3 million to operate their private investing wings, known as family offices, according to a J.P. Morgan Private Bank report.
The biggest cost is staffing, which has become more expensive as family offices have tripled in number over the past five years.
That’s leading to competition for talent with banks, private equity firms and hedge funds.

Sdi Productions | E+ | Getty Images

A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide to the high-net-worth investor and consumer. Sign up to receive future editions, straight to your inbox.
The typical family office costs more than $3 million a year to operate, as competition for talent drives up staffing expenses, according to a new study.

Wealthy families are spending anywhere from $1 million to more than $10 million a year to operate their family offices, with the average now at around $3.2 million, according to the J.P. Morgan Private Bank Global Family Office Report released this week. While the costs vary widely depending on assets, experts say expenses are growing across the board as family offices explode in size and number and compete more directly with private equity, hedge funds and venture capital.
“There’s a real war for talent within family offices,” said William Sinclair, U.S. head of J.P. Morgan Private Bank’s Family Office Practice. “They’re competing for talent against private equity and hedge funds and banks.”
Smaller family offices spend less, of course. According to the report, which surveyed 190 family offices with average assets of $1.4 billion, family offices that manage less than $500 million spend an average of $1.5 million a year for operating costs. Family offices between $500 million and $1 billion spend an average of $2.7 million, and those above $1 billion average $6.1 million. Fifteen percent of family offices spend more than $7 million, while 8% spend more than $10 million.
The biggest cost is staffing, which has become more expensive as family offices have tripled in number over the past five years. Family offices are increasingly competing with one another for senior talent, according to recruiters.
More importantly, family offices are shifting more of their investments into alternatives, which include private equity, venture capital, real estate and hedge funds. According to the J.P. Morgan survey, U.S. family offices have more than 45% of their portfolios in alternatives, compared with 26% for stocks.

As they expand their reach into alternatives, they’re increasingly in direct competition with big private equity firms, venture capital firms and deal advisors to bring in top talent.
“We’ve seen over the last decade, the professionalization and institutionalization of the family office space,” said Trish Botoff, founder and managing principal of Botoff Consulting, which advises family offices on recruiting and staffing. “They’re building out their investments teams, hiring staff from other investment firms and private equity firms, so that has a huge impact on compensation.”
According to a family office survey conducted by Botoff Consulting, 57% of family offices plan to hire more staff in 2024 and nearly half are planning on extending raises of 5% or more to their existing staff. Experts say overall pay at family offices is up between 10% and 20% since 2019 due to frenzied demand for talent in 2021 and 2022.
The average compensation for a chief investment officer for a family office with less than $1 billion in assets is about $1 million, according to Botoff. The average comp for a CIO overseeing more than $10 billion is just under $2 million, she said. Botoff said more family offices are adding long-term incentive plans, such as deferred compensation, on top of their base salary and bonus, to sweeten the packages.
Competition is even driving up salaries for lower-level staff. Botoff said one family office she worked with was hiring a junior analyst who asked for $300,000 a year.
“The family office decided to wait a year,” she said.
Competition with private equity firms is getting especially costly. As more single-family offices do direct deals, buying stakes in private companies directly, they’re trying to lure talent from the big private equity firms such as KKR, Blackstone and Carlyle.
“It’s the biggest quandary,” said Paul Westall, co-founder of Agreus, the family office advisory and recruiting firm. “Family offices just can’t compete at a senior level with the big PE firms.”
Instead, Westall said, family offices are recruiting midlevel managers at PE firms and giving them more authority, better access to deals and higher pay. Family offices are now sometimes giving PE recruits a “carry” — meaning a share of the profit when a private company is sold — similar to PE firms.
He said better pay, access to billionaires and their networks, and the benefit of “not feeling like just a cog in a big wheel” are making family offices more attractive places to work.
“If you look back 15 years ago, family offices were where people went to retire and have work-life balance,” he said. “That’s all changed. Now they’re bringing in top talent and paying their people, and that’s pushed them into competition with the big firms and the banks.”
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A former Societe Generale trader who was fired for unauthorized risky bets has lambasted the French bank for making him a “scapegoat” and failing to take its share of responsibility.
Kavish Kataria, who was dismissed from the bank’s Delta One desk last year, said the profits and losses on his trades were reported on a daily basis to superiors in Hong Kong and Paris.
A SocGen spokesperson declined to comment on the post, but provided a statement on the dismissal and said the incident “didn’t generate any impact.”

A logo outside a Societe Generale SA office building in central Paris, France, on Monday, Feb. 5, 2024. 
Bloomberg | Bloomberg | Getty Images

A former Societe Generale trader who was fired for unauthorized risky bets has lambasted the French bank for making him a “scapegoat” and failing to take its share of responsibility for missing the trades.
Kavish Kataria, who was dismissed from the bank’s Delta One desk last year, said the profits and losses on his trades were reported on a daily basis to superiors on his Hong Kong team as well as those in the Paris head office, while a daily email about the transactions was also sent out.

“Instead of taking the responsibility of the lapse in their risk system and not identifying the trades at the right time they fired me and terminated my contract,” Kataria said in a LinkedIn post Thursday.
The comments come after SocGen confirmed earlier this week that Kataria and team head Kevin Ng were dismissed last year after an internal review of their transactions. A SocGen spokesperson declined to comment on the post, but provided a statement on the pair’s dismissal.
“Our strict control framework has allowed us to identify a one-off trading incident in 2023, which didn’t generate any impact and led to appropriate mending measures,” the statement said.
Although SocGen did not lose any money from the trades, losses could have spiraled into the hundreds of millions of dollars had there been a market downturn, a person familiar with the matter told the Financial Times.
Kataria had been dealing in options on Indian indexes, which he was not permitted to do, the person said. However, because most were intraday trades, they were not immediately detected, the FT reported.

Kataria said the trades were auto-booked and a “daily email was sent to the entire group mentioning the trades have been reconciled.”
“It’s very easy for other people to say that we were not aware of the trades done by me,” he wrote. “This means either you were not doing your job properly or either you were unfit for the same.”
Kataria joined the bank in Hong Kong in 2021 and claimed he made $50 million for the desk in the last eight months alone.
In his LinkedIn post, he called for better regulation after he was dismissed with seven days’ salary and his bonus for the previous year was withheld.
“Trading Industry is so big but there are no rules or regulations which fight for trader justice,” he said.
Risk management is a critical area of focus for banks, and SocGen remains scarred by the 4.9 billion euros ($5.2 billion) in losses accrued in 2008 by “rogue trader” Jerome Kerviel, who worked on the same derivatives desk as Kataria.
The French bank on Friday reported a lower-than-expected 22% slide in first-quarter net income, as profits on equity derivative sales offset weakness at its retail bank and fixed income trading. More

Adoption of battery and hybrid-powered cars has surged in China, but an onslaught of new models has fueled a price war, while regulatory scrutiny grows abroad.
“The speed of elimination will only pick up,” Feng Xingya, president at GAC, told reporters on the sidelines of the Beijing auto show in late April. That’s according to a CNBC translation of his Mandarin-language remarks.
“The difference today is that the overcapacity now has come together with vehicles that are very competitive,” said Stephen Dyer, co-leader of the Greater China Business at consulting firm AlixPartners, and Asia leader for its automotive and industrials practice.

Chinese new energy vehicle giant shows off the latest version of its Han electric sedan at the Beijing auto show on April 26, 2024.
CNBC | Evelyn Cheng

BEIJING — Chinese automakers, including state-owned auto giant GAC Group, can’t afford to take it easy in the country’s electric car boom if they want to survive.
Adoption of battery and hybrid-powered cars has surged in China, but an onslaught of new models has fueled a price war that’s forced Tesla to also cut its prices. While Chinese automakers also look overseas for growth, other countries are increasingly wary of the impact of the cars on domestic auto industries, requiring investment in local production. It’s now survival of the fittest in China’s already competitive EV market.

“The speed of elimination will only pick up,” Feng Xingya, president at GAC, told reporters on the sidelines of the Beijing auto show in late April. That’s according to a CNBC translation of his Mandarin-language remarks.
GAC slashed prices on its cars one week before the May 1 Labor Day holiday in China, Feng said, noting the price war contributed to its first-quarter sales slump. The automaker’s operating revenue fell year-on-year in the first quarter for the first time since 2020, according to Wind Information.
To stay competitive, Feng said GAC is partnering with tech companies such as Huawei, while working on in-house research and development. The automaker is the joint venture partner of Honda and Toyota in China, and has an electric car brand called Aion.

“In the short term, if your product isn’t good, then consumers won’t buy it,” Feng said. “You need to use the best tech and the best products to satisfy consumer needs. In the long term, you must have a core competitive edge.”

Expanding outside China

Like other automakers in China, GAC is also turning overseas. Domestic sales of new energy vehicles, which include battery-only and hybrid-powered cars, have slowed their pace of growth as of March, versus December, according to China Passenger Car Association data.

Last year, GAC revamped its overseas strategy with an ultimate goal of selling 1 million cars abroad — electric, hybrid and fuel-powered, Wei Haigang, general manager of GAC International, told CNBC in an interview last week.
The company still has a long way to go. It only exported about 50,000 cars last year, Wei said. But he said the goal is to double that to at least 100,000 vehicles this year, and reach 500,000 units by 2030 — with sales targets and strategies for different regions of the world, beginning with the Middle East and Mexico.
“We are now going all out to speed up our overseas expansion,” he said in Mandarin, translated by CNBC.
China’s overseas car sales surged last year, putting the country on par with Japan as the world’s largest exporter of cars. The EU and the U.S. have in the last year announced probes into China-made electric vehicles, amid efforts to encourage consumers to shift away from fuel-powered cars.

Factories go global

Part of GAC’s international strategy is to localize production, Wei said, noting the company is using a variety of approaches such as joint ventures and technology partnerships. He said GAC opened a factory in Malaysia in April and plans to open another in Thailand in June, with Egypt, Brazil and Turkey also under consideration.
GAC plans to establish eight subsidiaries this year, including in Amsterdam, Wei said. But the U.S. isn’t part of the company’s near-term overseas expansion plans, he said.

The difference today is that the overcapacity now has come together with vehicles that are very competitive

Stephen Dyer
AlixPartners, co-leader of the Greater China Business

U.S. and European officials have in recent months emphasized the need to address China’s “overcapacity,” which can be loosely defined as state-supported production of goods that exceeds demand. China has pushed back on such concerns and its Ministry of Commerce claimed that, from a global perspective, new energy faces a capacity shortage.
“There’s always been overcapacity in the Chinese auto industry,” said Stephen Dyer, co-leader of the Greater China business at consulting firm AlixPartners, and Asia leader for its automotive and industrials practice.
“The difference today is that the overcapacity now has come together with vehicles that are very competitive,” he told CNBC on the sidelines of the auto show. “So in our EV survey I was surprised to find that about 73% of U.S. consumers could recognize at least one Chinese EV brand. And Europe was close behind.”
Dyer expects that to drive overseas demand for Chinese electric cars. AlixPartners’ survey found that BYD had the highest brand recognition across the U.S. and major European countries, followed by Nio and Leap Motor.
BYD exported 242,000 cars last year and is also building factories overseas. The company’s sales are roughly split between hybrid and battery-powered vehicles. BYD no longer sells traditional fuel-powered passenger cars.

Tech competition

In addition to price, this year’s auto show in Beijing reflected how companies — Chinese and foreign — are competing on tech such as driver-assist software.
Chinese consumers placed almost twice as much importance on tech features compared with U.S. consumers, Dyer said, citing AlixPartners’ survey.
He noted how Chinese startups are so aggressive that a car may be sold with new tech, even if the software still has problems. “They know they can use over-the-air updates to rapidly fix bugs or add features as needed,” Dyer said.
Interest in tech doesn’t mean consumers are sold on battery-only cars. Dyer said that in the short term, consumers are still worried about driving range — meaning that hybrids are not only in demand, but often used without charging the battery.

Even Volkswagen is getting in on the “smart tech” race. The German auto giant revealed at the auto show its joint venture with Shanghai’s state-owned SAIC Motor teamed up with Chinese drone company DJI’s automotive unit to create a driver-assist system for the newly launched Tiguan L Pro.
The initial version of the SUV is fuel-powered, for which the company’s tagline is: “oil or electric, both are smart,” according to a CNBC translation of the Chinese.
Battery manufacturer CATL had a more prominent exhibition booth this year, likely in the hope of encouraging consumers to buy cars with its batteries, as competitors’ market share grows, said Zhong Shi, an analyst with the China Automobile Dealers Association.
Automotive chip companies Black Sesame and Horizon Robotics also had booths inside the main exhibition hall.

What customers want

Lotus Technology, a high-end U.K. car brand acquired by Geely, found in a survey of its customers their top requests were for automatic parking and battery charging, which would allow drivers to stay in the car.

That’s according to CFO Alexious Kuen Long Lee, who spoke with CNBC on the sidelines of the Beijing auto show. He noted the company now has robotic battery chargers in Shanghai.
Lotus and Nio last week also announced a strategic partnership on battery swapping and charging.
“I think there is a handing over of the baton where the Chinese brands are becoming much bigger and much stronger, and the foreign brands are still trying to decide what’s the best energy route,” said Lee, who’s worked in China since 1998. “Are they still deciding on the PHEV, are they still thinking about BEVs, are they still thinking about the internal combustion cars? The entire decision-making process becomes so complex, with so much resistance internally, that I think they’re just not being productive.”
But he thinks Lotus has found the right strategy by expanding its product line, and going straight to battery-powered cars. “Lotus today,” he said, “is similar to what international brands’ position [was] in China, probably back in 2000.” More

One-third of Ivy League graduates end up working in finance or consulting. So perhaps it is unsurprising that campus protesters are providing investment advice: they want university endowments to get rid of assets linked to Israel. At Columbia University, for instance, a coalition of more than 100 student organisations is demanding that administrators divest from companies that “publicly or privately fund or invest in the perpetuation of Israeli apartheid and war crimes”. Another longer-running campaign by green types hopes to push fossil fuels out of portfolios.Divesting from something has obvious symbolic value. But many protesters hope to have a real-world impact, too. Divestment campaigns may exert influence by starving their targets of capital. Scare enough investors from an industry or country and, so the argument goes, companies will find it harder to raise or borrow money, which will force them to change their behaviour. If enough Israeli firms begin to suffer, perhaps Binyamin Netanyahu will rethink his campaign in Gaza. How likely is this to work? More

Hedge funds take great pains to hide their inner workings. So a recent court case in which Jane Street sued two former employees and Millennium Management, another fund to which they had jumped ship, was immensely pleasing to the firm’s rivals, since it offered a rare view into one of the industry’s giants. Among the revelations: Jane Street’s “most profitable strategy” did not play out on Wall Street, but in the unglamorous Indian options business, where the firm last year earned $1bn.This news has drawn attention to India’s options market, which is staggeringly large. According to the Futures Industry Association (FIA), a trade body, the country accounted for 84% of all equity option contracts traded globally last year, up from 15% a decade ago. The volume of contracts last year touched 85bn and has more than doubled every year since 2020 (see chart). Most of the frenzy is focused on the National Stock Exchange (NSE), which handles more than 93% of the transactions. More

When Russia’s leaders stopped most of the country’s gas deliveries to the EU in 2022, they thought themselves smart. Prices instantly shot up, enabling Russia to earn more despite lower export volumes. Meanwhile, Europe, which bought 40% of its gas from Russia in 2021, braced itself for inflation and blackouts. Yet two years later, owing to mild winters and enormous imports of liquefied natural gas (LNG) from America, Europe’s gas tanks are fuller than ever. And Gazprom, Russia’s state-owned gas giant, is unable to make any profits.Russia was always going to struggle to redirect the 180bn cubic metres (bcm) of gas, worth 80% of its total exports of the fuel in 2021, that it once sold to Europe. The country has no equivalent to Nord Stream, a conduit to Germany, that allows it to pipe gas to customers elsewhere. It also lacks plants to chill fuel to -160°C and the specialised tankers required to ship LNG. Until recently, this was only a minor annoyance. Between 2018 and 2023 just 20% of the total contribution of hydrocarbon exports to the Russian budget came from gas, and despite sanctions Russia continues to sell lots of oil at a good price. More

The Federal Reserve held its ground on interest rates, again deciding not to cut as it continues a battle with inflation that has grown more difficult lately.
The federal funds rate has been between 5.25%-5.50% since July 2023, when the Fed last hiked and took the range to its highest level in more than two decades.
“The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent,” the Fed’s statement said.

WASHINGTON – The Federal Reserve on Wednesday held its ground on interest rates, again deciding not to cut as it continues a battle with inflation that has grown more difficult lately.
In a widely expected move, the U.S. central bank kept its benchmark short-term borrowing rate in a targeted range between 5.25%-5.50%. The federal funds rate has been at that level since July 2023, when the Fed last hiked and took the range to its highest level in more than two decades.

The rate-setting Federal Open Market Committee did vote to ease the pace at which it is reducing bond holdings on the central bank’s mammoth balance sheet, in what could be viewed as an incremental loosening of monetary policy.
With its decision to hold the line on rates, the committee in its post-meeting statement noted a “lack of further progress” in getting inflation back down to its 2% target.
“The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent,” the statement said, reiterating language it had used after the January and March meetings.
The statement also altered its characterization of its progress toward its dual mandate of stable prices and full employment. The new language hedges a bit, saying the risks of achieving both “have moved toward better balance over the past year.” Previous statements said the risks “are moving into better balance.”
Beyond that, the statement was little changed, with economic growth characterized as moving at “a solid pace,” amid “strong” job gains and “low” unemployment.

Chair Jerome Powell during the news conference following the decision expanded on the idea that prices are still rising too quickly.
“Inflation is still too high,” he said. “Further progress in bringing it down is not assured and the path forward is uncertain.”
However, investors were pleased by Powell’s comment that Fed’s next move was “unlikely” to be a rate hike. The Dow Jones Industrial Average jumped after the remarks, and rose as much as 500 points. He also stressed the need for the committee to make its decisions “meeting by meeting.”
On the balance sheet, the committee said that beginning in June it will slow the pace at which it is allowing maturing bond proceeds to roll off without reinvesting them.

‘Quantitative tightening’

In a program begun in June 2022 and nicknamed “quantitative tightening,” the Fed had been allowing up to $95 billion a month in proceeds from maturing Treasurys and mortgage-backed securities to roll off each month. The process has resulted in the central bank balance sheet to come down to about $7.4 trillion, or $1.5 trillion less than its peak around mid-2022.
Under the new plan, the Fed will reduce the monthly cap on Treasurys to $25 billion from $60 billion. That would put the annual reduction in holdings at $300 billion, compared with $720 billion from when the program began in June 2022. The potential mortgage roll-off would be unchanged at $25 billion a month, a level that has only been hit on rare occasions.
QT was one way the Fed used to tighten conditions after inflation surged, as it backed away from its role of assuring the flow of liquidity through the financial system by buying and holding large amounts of Treasury and agency debt. The reduction of the balance sheet roll-off, then, can be seen as a slight easing measure.
The funds rate sets what banks charge each other for overnight lending but feeds into many other consumer debt products. The Fed uses interest rates to control the flow of money, with the intent that higher rates will dampen demand and thus help reduce prices.
However, consumers have continued to spend, running up credit indebtedness and decreasing savings levels as stubbornly high prices eat away at household finances. Powell has repeatedly cited the pernicious effects of inflation, particularly for those at the lower-income levels.

Prices off peak levels

Though price increases are well off their peak in mid-2022, most data so far in 2024 has shown that inflation is holding well above the Fed’s 2% annual target. The central bank’s main gauge shows inflation running at a 2.7% annual rate – 2.8% when excluding food and energy in the critical core measure that the Fed especially focuses on as a signal for longer-term trends.
At the same time, gross domestic product grew at a less-than-expected 1.6% annualized pace in the first quarter, raising concerns over the potential for stagflation with high inflation and slow growth.
Most recently, the Labor Department’s employment cost index this week posted its biggest quarterly increase in a year, sending another jolt to financial markets.
Consequently, traders have had to reprice their expectations for rates in a dramatic fashion. Where the year started with markets pricing in at least six interest rate cuts that were supposed to have started in March, the outlook now is for just one, and likely not coming until near the end of the year.
Fed officials have shown near unanimity in their calls for patience on easing monetary policy as they look for confirmation that inflation is heading comfortably back to target. One or two officials even have mentioned the possibility of a rate increase should the data not cooperate. Atlanta Fed President Raphael Bostic was the first to specifically say he only expects one rate cut this year, likely in the fourth quarter.
In March, FOMC members penciled in three rate cuts this year, assuming quarter percentage point intervals, and won’t get a chance to update that call until the June 11-12 meeting. 
Correction: The Federal Reserve kept its benchmark short-term borrowing rate in a targeted range between 5.25%-5.50%. An earlier version misstated the range. The Fed’s next meeting is June 11-12. An earlier version misstated the date.

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U.S. Federal Reserve Chair Jerome Powell holds a press conference following a two-day meeting of the Federal Open Market Committee on interest rate policy in Washington, D.C., on March 20, 2024.
Elizabeth Frantz | Reuters

This is a comparison of Wednesday’s Federal Open Market Committee statement with the one issued after the Fed’s previous policymaking meeting in March.
Text removed from the March statement is in red with a horizontal line through the middle.

Text appearing for the first time in the new statement is in red and underlined.
Black text appears in both statements.

Arrows pointing outwards More