Proponents of family offices believe light oversight is justified because these offices only serve private families. As they are not offering services to multiple clients, the thinking goes, family offices should not be subject to scrutiny. However, the Archegos collapse revealed that family offices can contribute to systemic risk because of their size, secrecy, and growing interest in speculative investments. Together they manage trillions in unregulated financial capital, some invested in the next generation of exotic financial instruments and profit-making schemes.
Family offices should be required to register with the Securities and Exchange Commission (SEC) and publicly report certain option and stock positions on a quarterly basis. They should be required to make 13F disclosures on a quarterly basis to declare all portfolio positions, as hedge funds must do.
Archegos is an early warning sign about how new speculative investment tools — the equivalent of credit default swaps during the 2008 economic meltdown — will arrive on the scene. Don’t be surprised when the delivery systems are capital supplied by family offices.