Family offices, which manage money and other affairs for the wealthiest clans, are starting to focus on nascent cryptocurrency and blockchain funds and companies, but they’re doing so cautiously.

Only about 11 percent of those surveyed at this winter’s Context Summits said they expected to put money into crypto funds this year. The summits gather family offices, funds-of-hedge-funds, endowments, foundations, and sovereign wealth funds. At least one-quarter of those respondents were family offices.

Family offices have a wide range of responsibilities, so investment consultants, fund managers and the business media have taken to explaining the basics of blockchain and cryptocurrency to them.

Families and Funds

At least somebody’s listening, compared to a year ago.

“In the last two years I’ve noticed an uptick in interest to, ‘I want more,’ meaning, they want more information,” says Angelo Robles, founder and CEO of the Family Office Association, a Greenwich, Conn.-based consortium of 250 family offices who convene to share best practices about operations and investing. “Back in 2011 I could have put 10 single family offices in the room; maybe two would have heard of bitcoin (BTC).”

For both fund managers and family office chief investment officers, a decision about investing in crypto often boils down to reputation.

He and others who advise family offices agree the investing philosophies of offices can vary. Those run solely on behalf of the first generation that actually accumulated wealth tend to be more sympathetic to new industries, seeing shades of the family’s ambitions in the current crop of entrepreneurs.

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.”

For both fund managers and family office chief investment officers, a decision about investing in crypto often boils down to reputation, he adds. In such a small industry, reputation reverberates loudly.

As uncertain as the crypto industry is within the U.S., it can appear to be a haven of stability for wealthy families located outside the U.S., Canada and Europe, adding yet another dimension for investment, says Robles. Families located in countries with less-secure banking systems are intrigued by the international and transparent aspects of crypto, “both from a speculation angle and also for the longer term,” he says.

Joanne Cleaver
Joanne Cleaver is a Chicago-based freelance, business and lifestyles journalist based. Her work has appeared in a number of national and regional publications. Earlier in her career, she was the deputy business editor at the Milwaukee Journal Sentinel.