In a recent op-ed for WealthManagement.com, Columbia Wealth Management Lecturer Bill Woodson examines the consequences of the recent collapse of Archegos Capital Management, a multi-billion dollar family office founded by New York investor Bill Hwang. With Washington now considering increasing regulatory oversight of family offices, Woodson reminds readers that because family offices are essentially extensions of private individuals, “hindering the operations of these institutions because of the investment activity of their founders is misguided—and potentially harmful.”
Woodson explores the question of blame: is the individual or the institution responsible? Should the backlash focus on Mr. Hwang’s activity with his own money or the managerial entity which allowed him to make such large bets? If the outcry is indeed toward an individual, Woodson argues that the focus should shift to the systematic risk that such large family investors pose to the banking system. “The question, then, should be how much risk private individuals should be allowed to take with their own money,” Woodson writes. “Or, which mechanisms can monitor these exposures, as they pertain to public companies.”
Woodson explains the importance of family offices due to the fact that “a select few families now control a disproportionate amount of wealth globally.” The manner by which his wealth is managed and distributed could play a significant role in societal developments. “It only follows that increased regulation would likely restrict the philanthropic efforts of many family offices and perhaps impair their ability to fund startups that promote meaningful innovation,” Woodson warns.
Woodson compares the currently proposed method of increased regulation to a game of “whack-a-mole” due to “temporary Band-Aids over the wrong wounds.” He concludes, “The culprits in this tragedy are the actors themselves, not the family office entity through which their actions were conducted. If key financial stakeholders and decision makers can recognize this potential problem, Washington should work to do the same.”
Read Bill Woodson’s full article “The Proposed Overregulation of Family Offices,” on WealthManagement.com.
