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The Family Office and Family Foundation: The Power of Partnership

Ed Lazar, CFA™, President

Both in working with and in dialogue among family offices that support family foundations, our experience indicates a bit of an uninspired relationship often exists between the two.  

Under-developed relationships are generally not the result of animus between the family’s financial and philanthropic capital. Instead, the foundation’s purpose and functioning, frequently an eclectic collection of the family’s philanthropic desires, is often too neatly viewed and efficiently administered under one umbrella. Further, a number of explicit Internal Revenue Service rules restrict what a family office can do for a related family foundation for compensation – this often leads to a dispassionate relationship, for fear of violating rules that have very real - and draconian - consequences.

Ed Lazar Feature

But suppose the two entities view this instead as a partnership opportunity that doesn’t settle for self-imposed constraints or a lack of creative energy.  They encourage an energizing family philanthropic vision, aligning their philanthropic wants and resources to work where they produce the most good. They picture a service partner that not only helps achieve that vision, but who views it as consistent with and in support of achieving their own.

Very early on in the existence of The Russell Family Foundation (TRFF) and Threshold Group (TG), we viewed our unique, joined-at-the-hip relationship as a chance to assist our founding family in achieving their philanthropic vision and in so doing, leverage exceptional service solutions for our other clients and learning opportunities for our staff.

To do so, it first required a passionate, visionary philanthropic family - check!  Both TRFF and TG embraced the seeming dichotomy of treating the client-service provider relationship as arm’s length – separate and distinct from the family office’s relationship with other family members and entities – while leveraging the common family values and goals which informed our work. Both Threshold Group and TRFF’s leaders began by modeling a family value of deep respect for the individual.  That respect extended to both organizations as a whole and is deeply embedded in both cultures.

TG set a course to treat TRFF as we would any other client, defining “substance and form” relationship goals, combined with true accountability to those goals.  Annually, we specifically define, through our Client Expectation process, the roles and responsibilities of both organizations in how we work together to achieve TRFF’s goals. TG requests formal feedback each year, gathered by an individual outside the client service team, on what TG did well and where TG can improve - the feedback is neither cursory nor always positive! To add accountability, more than one-third of client service team incentive compensation is premised on the TRFF experience rating, exactly like every other client.

Permeated by another cherished family value – shared learning - this candid feedback and the process to incorporate it in our work together over ten years built the vulnerability and trust that led to a deep level of partnership.  This partnership has resulted in groundbreaking work on the part of the foundation, including mission-related investing and Canopy (more on both in a minute.) As Richard Woo, CEO of TRFF says, “Over the years, the relationship between the Foundation and Threshold Group has evolved from ‘arms-length to arms embrace’ by building upon the synergy of shared values passed on to each organization from the original founding family—the Russell’s.”

  • Have you ever seen a tug of war match with both sides winning?  Recently, TG held an intellectual tug-of-war with TRFF that reconciled the tension between competing traditional and impact investment priorities.
  • Over time, TRFF’s goals on the alignment of its portfolio with its impact objectives had evolved.  Yet, TRFF was in uncharted investment waters with the implementation of this thought evolution.  To help, two TG researchers isolated themselves, assuming they had only cash to invest, one 100% focused on a clients’ investment objectives (meeting annual distributions in perpetuity), while the other assumed broad license to build a portfolio 100% aligned with the client’s mission and values.  Once complete, they reconciled their portfolios and seemingly competing goals into one optimal portfolio which struck the right balance.
  • The resulting presentation focused on educating TRFF about how to think through competing priorities.  The intended result was a decision-making framework designed to incorporate the quantitative and equally important qualitative aspects of evolving one’s portfolio to serve mission and values.  As a result, great progress was made toward developing an aligned “trade-off” decision-making framework, with a phased implementation schedule designed to provide feedback before moving into subsequent implementation steps. None of this could have been accomplished without partners who were willing to think and act creatively, in an atmosphere of trust, in each other and in a better outcome.
  • In recent years, TRFF started reimagining how they put their capital to work beyond conventional investments with market-based returns. They wanted to see their investments serve a purpose in their local communities, but finding investible opportunities that aligned with their mission was a challenging process.

With this reimagined landscape in mind, TRFF became a leading investor in Canopy, a member-owned, for-benefit company designed to advance regional investing. Canopy emerged from the parallel paths and vision of its founders, including TRFF and two other foundations, who committed to finding ways to drive economic growth in the Pacific Northwest. These foundations believed that they could do more by leveraging capital from across the region, setting the stage for many disconnected stakeholders to become part of a bigger community-driven investment collaborative.

Canopy is a partnership – one that builds on the Russell families’ legacy in investments, TRFF’s philanthropic innovation and Threshold Group’s commitment to supporting the vision of its clients, conducting research on investments that drive regionally based economic development through TG’s “Invest NW” platform.

In closing, I challenge you to reimagine your family office’s relationship with the family foundation. If you do so and act on it accordingly, you’ll accomplish more, both internally and for the causes the foundation holds most dear.  And as a result, you’ll take away more satisfaction from your efforts and in your relationships, every day.

©2015 Threshold Group is a Registered Investment Adviser.

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