The Troubled $6 Trillion Family Office Business Sends Shock Waves Through Black Investment Industry
By Sabrina Lynch
- Former family office financial Investor Bill Hwang gained $20B and lost it all in 10 days
- Family offices offer a way for minority-led businesses to grow their assets
The implosion of Bill Hwang’s Archegos Capital Management is a case-study in a spectacular fall from grace and failure in modern financial history, among the super secretive $5.9 trillion family office industry. No one ever has lost so much money in such a short space of time, causing great concerns among the Black business community on the viability of family offices, privately owned companies that handle investments and wealth management for families or successful business leaders. This new distrust signals bleak news for minority-owned businesses, particularly for people of color who often face severe challenges when accessing capital.
Why This Matters: Family offices offer a way for minority-led businesses to grow their assets, providing this important community of entrepreneurs the one upmanship they need to build generational wealth. Bill Hwang’s deception and manipulation of the global stock market has jeopardized potential investment opportunities that would usually supercharge companies owned by People of Color, thus the racial wealth gap will only continue to increase.
Because of the COVID-19 pandemic, many minority-owned businesses are finding themselves in a bind - with Black-owned companies experiencing declines of 41%, Latino-owned by 32%, and Asian-owned by 26%. These communities are stretching their limits to find new sources of capital. With the debt market being in disarray, family offices offer a lifeline to entrepreneurs in helping preserve their wealth for generations to come. Those at the top of the market are motivated to share resources for those “coming up” as a means of creating much-needed value for companies reaching a breaking point.
There are 6,000 family offices in the U.S. including Bill and Melinda Gates’ Cascade Investment, who provide these resources to boost operations and business equity in today’s harsh economic climate. On average, they control assets worth $1.6 billion apiece, according to another 2020 study by UBS, and a handful can stretch into hundreds of billions of dollars. While hedge funds have their own system of checks and balances to hold them accountable, family offices remain a secretive affair.
Situational Awareness: Minority-owned businesses are the backbone of the U.S. economy and are usually kickstarted by loans from family members or by pushing credit-card limits to the max. The success of these enterprises has a tremendous impact on local neighborhoods, helping to counter issues of joblessness through sustainable employment. In a post-Archegos world, the industry could see new rules for family offices and banking services introduced, limiting avenues of investment for small businesses.
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