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I struggle to understand the point of the article. >Rich clients have taken a closer look at private banks’ high fees and murky incentives, and balked. OK. Ri

I struggle to understand the point of the article. >Rich clients have taken a closer look at private banks’ high fees and murky incentives, and balked. OK. Rich clients were not happy with the way external managers managed their funds and decided to do it themselves. I get it. >As they grow even bigger in an era of populism, family offices are destined to face uncomfortable questions about how they concentrate power and feed inequality. How on Earth is it related to populism? >Family offices have created inequality. If the author's explanation of what family offices are is correct, they didn't create inequality. If you take your money from a deposit and decide to invest yourself you don't create inequality. You undertake higher risk and potentially receive higher award. What's the point of the article?

golergka 8y ago
Rich people bad.
- cporios 8y ago
  This is neither what the article is saying or implying, nor the general view or bias of this newspaper.
pbhjpbhj 8y ago
>If the author's explanation of what family offices are is correct, they didn't create inequality. If you take your money from a deposit and decide to invest yourself you don't create inequality. // If you can afford to invest, and do so successfully, you therefore make money from others labour. As poor people can't do that, any successful investment is contributing to wealth inequality. In general, if you win on investments someone else is losing. This means that if having large capital base means you have accessv to better investments - eg avoiding large fees - then you'll drive more inequality. To recapitulate: There's only a certain amount of wealth generated, if you receive "higher reward" without doing more wealth generation then those generating the wealth are getting a smaller proportion.
vharuck 8y ago
The author floats and addresses possible worries, especially because populism focuses on comparing the "haves" and "have nots." The say "family offices create inequality" could be a worry, but that it has no merit. From the article: >The most obvious of these is the least convincing—that family offices have created inequality. They are a consequence, not its cause.
drewrv 8y ago
At a micro level, taking money out of a deposit and investing it does not create inequality. At a macro level, the fact that simply having wealth begets more wealth in a way that labor cannot accomplish is a driving force behind inequality.
- dgudkov 8y ago
  >simply having wealth begets more wealth It's not a 100% rule. Lots of wealth has been lost due to wrong investment. Many rich people lose their fortunes.
  - pvarangot 8y ago
    Even if it happened rarely capital gains would be a force driving inequality as the barrier to entry into investing your capital to offset for doing actual work remains high. That it sometimes fail would be sad for the ones it failed for, but still doesn't stops it from being a driving force for a big effect on the economy.
  - jandrese 8y ago
    > Many rich people lose their fortunes. Up to a point. The ultra-rich have so much money now that it would take a monumental disaster for them to become poor again. IIRC only one person in history has ever stopped being a billionaire: J. K. Rowling, and that was due to enormous philanthropic giving. Mere millionaires come and go, but once you're talking hundreds of millions the positive feedback loop of capital makes it difficult to lose everything.
    - gretch 8y ago
      My hypothesis of the world is that someone must have luck AND skill to become 100M+ wealthy and I think people commonly create a false dichotomy of luck OR skill. Maybe the reason we never see hundred millionaires lose everything is because they have the necessary skill to manage the money well. I don't think it would be correct to attribute causation based on the information we have available.
captainbland 8y ago
> How on Earth is it related to populism? In this case I suspect the author is talking about a popular interpretation of populism where a politician in question intends to make sweeping changes to constitutions and rights where those are seen to be working against the popular interest. In this case the answer might be to curb the rights of specific types of family investors somehow, for instance in European property markets (to take an example from the author) where this is seen as distorting the markets and causing pain to people - for instance not being able to afford housing, or ending up in negative equity because such funds pull out of the market and cause a bubble to collapse.
jniedrauer 8y ago
> If the author's explanation of what family offices are is correct, they didn't create inequality. If you take your money from a deposit and decide to invest yourself you don't create inequality. You undertake higher risk and potentially receive higher award. Inequality is a mathematical statement about the distribution of wealth. It has nothing to do with risk or fairness or "rewards". If you accumulate wealth in one place, then you very directly create inequality. That's exactly what inequality is. By definition.
- dgudkov 8y ago
  Money ownership didn't change when money management switched to family offices. So distribution of wealth hasn't changed. How did family offices create inequality?
- paulsutter 8y ago
  Yes but the family office didn’t cause the inequality, the inequality caused the family office.
- whatshisface 8y ago
  I think the author is suggesting that society would be better if rich people were to end up so mired in the principal-agent problem that they ended up with no more influence on the market than the average person. Of course, this appears to overlook the fact that if you don't like it when people accumulate power, then you actually want corporate executives to be beholden to an active stock market.
- the_watcher 8y ago
  The point is that whether or not a super rich person has that money in a family office or not, the inequality is the same
cporios 8y ago
I am honestly curious as to what you found confusing. I think it's fairly well structured and written. > How on Earth is it related to populism? A populist would generally be opposed to the concentration of wealth and power in a small subset of the population. Populism is on the rise today, as is the trend of family investment offices which are a result of concentrated wealth and power. Thus family offices are destined to face uncomfortable questions by populists. > they didn't create inequality. Yes, you're agreeing with the author. The surrounding sentances from the sentence you quoted: "[...] the objections to them [family offices] will rise exponentially. The most obvious of these is the least convincing — that family offices have created inequality. They are a consequence, not its cause." The article does not say that family offices have created inequality, it actually says that they have not. Regarding the "point of the article": This is an Economist "Leader", which is a one-page summary of the three-page full article published in the print version of the newspaper. It says the following: 1) Explains what "family offices" are: rich individual's DIY private investment firms. 2) Explains why the populist argument "family offices create inequality" is wrong. 3) Presents three arguments for "family offices are bad" with which the author does not agree, and their rebuttals: a) "family offices destabilize the financial system" - but data shows that actually they are doing the opposite. b) "family offices magnify the power of the wealthy" - but this is against the interests of their owners who want to diversify. c) "family offices might beat regular investors because they have privileged access to information" - they don't outperform the markets right now, but privileged access to information and insider trading could be a problem with family offices. The author arrives at the conclusion that family offices are a force for good, but more regulation and transparency might be required to address (3c).
- ghostly_s 8y ago
  > A populist would generally be opposed to the concentration of wealth and power in a small subset of the population. You (or the author of the full piece) seem to be describing Socialism. Populism is sometimes but not necessarily opposed to a wealthy elite, and the type of populism on the rise in the US and Europe seems generally to be a vague conception of a cultural elite, instead. Seems odd to bring into this discussion.

golergka 8y ago

Rich people bad.

cporios 8y ago
This is neither what the article is saying or implying, nor the general view or bias of this newspaper.

pbhjpbhj 8y ago

>If the author's explanation of what family offices are is correct, they didn't create inequality. If you take your money from a deposit and decide to invest yourself you don't create inequality. // If you can afford to invest, and do so successfully, you therefore make money from others labour. As poor people can't do that, any successful investment is contributing to wealth inequality. In general, if you win on investments someone else is losing. This means that if having large capital base means you have accessv to better investments - eg avoiding large fees - then you'll drive more inequality. To recapitulate: There's only a certain amount of wealth generated, if you receive "higher reward" without doing more wealth generation then those generating the wealth are getting a smaller proportion.

vharuck 8y ago

The author floats and addresses possible worries, especially because populism focuses on comparing the "haves" and "have nots." The say "family offices create inequality" could be a worry, but that it has no merit. From the article: >The most obvious of these is the least convincing—that family offices have created inequality. They are a consequence, not its cause.

drewrv 8y ago

At a micro level, taking money out of a deposit and investing it does not create inequality. At a macro level, the fact that simply having wealth begets more wealth in a way that labor cannot accomplish is a driving force behind inequality.

dgudkov 8y ago
>simply having wealth begets more wealth It's not a 100% rule. Lots of wealth has been lost due to wrong investment. Many rich people lose their fortunes.
- pvarangot 8y ago
  Even if it happened rarely capital gains would be a force driving inequality as the barrier to entry into investing your capital to offset for doing actual work remains high. That it sometimes fail would be sad for the ones it failed for, but still doesn't stops it from being a driving force for a big effect on the economy.
- jandrese 8y ago
  > Many rich people lose their fortunes. Up to a point. The ultra-rich have so much money now that it would take a monumental disaster for them to become poor again. IIRC only one person in history has ever stopped being a billionaire: J. K. Rowling, and that was due to enormous philanthropic giving. Mere millionaires come and go, but once you're talking hundreds of millions the positive feedback loop of capital makes it difficult to lose everything.
  - gretch 8y ago
    My hypothesis of the world is that someone must have luck AND skill to become 100M+ wealthy and I think people commonly create a false dichotomy of luck OR skill. Maybe the reason we never see hundred millionaires lose everything is because they have the necessary skill to manage the money well. I don't think it would be correct to attribute causation based on the information we have available.

captainbland 8y ago

> How on Earth is it related to populism? In this case I suspect the author is talking about a popular interpretation of populism where a politician in question intends to make sweeping changes to constitutions and rights where those are seen to be working against the popular interest. In this case the answer might be to curb the rights of specific types of family investors somehow, for instance in European property markets (to take an example from the author) where this is seen as distorting the markets and causing pain to people - for instance not being able to afford housing, or ending up in negative equity because such funds pull out of the market and cause a bubble to collapse.

jniedrauer 8y ago

> If the author's explanation of what family offices are is correct, they didn't create inequality. If you take your money from a deposit and decide to invest yourself you don't create inequality. You undertake higher risk and potentially receive higher award. Inequality is a mathematical statement about the distribution of wealth. It has nothing to do with risk or fairness or "rewards". If you accumulate wealth in one place, then you very directly create inequality. That's exactly what inequality is. By definition.

dgudkov 8y ago
Money ownership didn't change when money management switched to family offices. So distribution of wealth hasn't changed. How did family offices create inequality?
paulsutter 8y ago
Yes but the family office didn’t cause the inequality, the inequality caused the family office.
whatshisface 8y ago
I think the author is suggesting that society would be better if rich people were to end up so mired in the principal-agent problem that they ended up with no more influence on the market than the average person. Of course, this appears to overlook the fact that if you don't like it when people accumulate power, then you actually want corporate executives to be beholden to an active stock market.
the_watcher 8y ago
The point is that whether or not a super rich person has that money in a family office or not, the inequality is the same

cporios 8y ago

I am honestly curious as to what you found confusing. I think it's fairly well structured and written. > How on Earth is it related to populism? A populist would generally be opposed to the concentration of wealth and power in a small subset of the population. Populism is on the rise today, as is the trend of family investment offices which are a result of concentrated wealth and power. Thus family offices are destined to face uncomfortable questions by populists. > they didn't create inequality. Yes, you're agreeing with the author. The surrounding sentances from the sentence you quoted: "[...] the objections to them [family offices] will rise exponentially. The most obvious of these is the least convincing — that family offices have created inequality. They are a consequence, not its cause." The article does not say that family offices have created inequality, it actually says that they have not. Regarding the "point of the article": This is an Economist "Leader", which is a one-page summary of the three-page full article published in the print version of the newspaper. It says the following: 1) Explains what "family offices" are: rich individual's DIY private investment firms. 2) Explains why the populist argument "family offices create inequality" is wrong. 3) Presents three arguments for "family offices are bad" with which the author does not agree, and their rebuttals: a) "family offices destabilize the financial system" - but data shows that actually they are doing the opposite. b) "family offices magnify the power of the wealthy" - but this is against the interests of their owners who want to diversify. c) "family offices might beat regular investors because they have privileged access to information" - they don't outperform the markets right now, but privileged access to information and insider trading could be a problem with family offices. The author arrives at the conclusion that family offices are a force for good, but more regulation and transparency might be required to address (3c).

ghostly_s 8y ago
> A populist would generally be opposed to the concentration of wealth and power in a small subset of the population. You (or the author of the full piece) seem to be describing Socialism. Populism is sometimes but not necessarily opposed to a wealthy elite, and the type of populism on the rise in the US and Europe seems generally to be a vague conception of a cultural elite, instead. Seems odd to bring into this discussion.