Family Offices Consider Crypto Investments, but Gingerly

But once the second generation matures, the priority shifts to preserving wealth and philanthropy. Offices that represent multiple generations of the same family must balance sometimes-competing expectations and demands. Offices that manage money on behalf of several families have yet a different set of responsibilities as fiduciaries, accountants and asset managers, while cultivating their own reputations for being prudent in order to attract new clients.

Learning Curve

As family offices warm to crypto, they face a learning curve, says Mark Kress, CEO of Rockwell Capital Management, of Orinda, Calif., which includes family office responsibilities in its scope of operations.

“They love it intellectually, but when it comes to investing money they aren’t sure,” he tells ThirtyK.

Their caution is based partly on the fact that crypto, as a new asset class, “comes with an 80 percent variability of returns. It’s not something they are accustomed to seeing,” explains Kress, pointing to the 12 percent variability of stock funds based on the S&P 500 and of the 5 percent to 6 percent variability of bond funds.

Further complicating the risk equation is that managers of crypto funds tend to be young, which means managers for family offices are potentially investing in a new, unproven industry via funds handled by new, unproven managers. Kress is finding that family offices that are willing to work with young fund managers tend to be most open to crypto as a category. The intersection of the two perspectives narrows the field to as few as a few dozen family offices, he says.

On the other hand, the shape-shifting industry offers chances for gains through currency arbitrage based specifically on the gaps in industry infrastructure, says Kress: “They are not that anxious to go long on crypto but they understand that there’s an opportunity to make money, if they participate in inefficiencies. Emerging asset classes have inefficiencies, like no central exchange, and lots of issues with exchanges.”