Family Office Structuring: Why Operational and Investment Entities Should be Kept Separate

Family offices that manage significant capital and employ staff should operate through two distinct separate entities; one for employing personnel and managing operations and another for holding and managing investments. This mirrors the institutional fund model, where the fund is always separate from the fund manager and brings clear governance, risk protection and long-term flexibility.

Fund Structures Provide a Tested Governance Framework

Investment funds are never structured to directly employ their managers. A fund whether a Cayman mutual fund or private equity vehicle is a separate legal entity with its own governance and compliance obligations. The fund delegates investment authority to an external manager through a services agreement.

In Cayman, for example, regulated funds must appoint directors or a general partner who oversee valuation, monitor cash flows, manage conflicts of interest and ensure internal controls are in place. These duties are distinct from the operating functions performed by the management company, which employs staff and contracts with vendors. This separation reduces liability, aligns responsibilities and satisfies investor expectations.

Applying the Same Logic to Family Offices

Family offices can benefit from the same structure:

• Investment Entity: Typically a Cayman exempted company, Segregated Portfolio Company (SPC), or Exempted Limited Partnership (ELP), this entity holds portfolio investments and may act through a board, director, or GP. It does not employ staff or run operations. It can contract with service providers, including the family office operating entity, to perform defined functions.
• Operating Entity: This entity hires employees, manages service providers and maintains the family office’s systems and infrastructure. It may also charge a management fee to the investment entity or receive funding via distributions or intercompany transfers.
• Delegated Functions: Responsibilities like cash monitoring, asset valuation and compliance can be contracted out or handled by internal staff, but must be clearly delineated to preserve the separation of duties.

Why This Matters

1. Legal and Operational Risk Containment

Employment claims, tax obligations, or vendor disputes can expose the entire family enterprise if assets and operations are housed in the same entity. Separating them ensures that investment assets are shielded from operational liabilities.

2. Improved Governance and Oversight

Using separate structures encourages the adoption of formal governance procedures: board meetings, documented policies, role separation and (where needed) the inclusion of independent directors or advisers. This provides transparency and accountability especially important when managing wealth across generations or branches of a family.

3. Regulatory and Tax Efficiency

In international setups, it’s common to operate the employment company in an onshore jurisdiction (e.g. UK or Switzerland), while using a tax-neutral investment vehicle offshore. This division allows each entity to comply with local laws without creating cross-purpose obligations.

4. Operational Flexibility and Outsourcing

Investment entities can engage fund administrators, custodians, or technology platforms directly. Outsourcing is cleaner when it’s the investment company, not the operating entity that signs contracts related to assets.

5. Succession and Continuity

Clear entity structures make it easier to assign control, delegate authority, and ensure continuity in governance, whether through family councils, professional directors, or trusted advisers. This is foundational to long-term wealth preservation.

The fund model exists because it works. For governance, risk control and long-term success, family offices should adopt the same principle, keeping operations and investments in separate entities.

FundFront helps family offices design and implement institutional structures, using proven fund governance principles adapted to private wealth. Contact us to discuss your objectives. Fill out our contact form or book a call at a time that is convenient for you here.

Articles that you may also be interested in:

• A Guide to Setting Up a Private Fund in the Cayman Islands: What Family Offices Need to Know
• Segregated Portfolio Companies Explained for Multi-Household Family Offices
• Selecting the Right Structure for Your Family Office
• Step-by-Step: Structuring Your Securitised Investment Vehicle
• How Family Office Software is Transforming Modern Wealth Management

Disclaimer

FundFront provides operational and technological solutions for fund structuring, securitisation and management. We do not provide legal, tax or financial advice. We recommend that you consult with professional legal or financial advisors to ensure compliance and appropriateness for your specific situation.