Family Offices Use a 2011 SEC Rule to Pay Staff Like Private Equity

Kevin Warsh's federal financial disclosures put a number on an obscure corner of family office economics. More than $100 million of his wealth is in Duquesne Family Office's Juggernaut Fund. The money is split across two stakes, each worth at least $50 million. CNBC first reported the filings. Warsh, the Federal Reserve chair nominee, joined Stanley Druckenmiller's firm as a partner and advisor after leaving the Fed in 2011.

The arrangement rests on a 2011 SEC rule. It lets single-family offices treat key employees as family clients. That label matters because a family office can avoid registering as an investment adviser only if it manages assets for family members. The SEC counts directors, executive officers, and people otherwise involved in investment activity as family. Investment professionals must have held those duties for at least 12 months, at the family office or elsewhere.

The carveout has become a pay practice, family office attorneys say. Offices increasingly pay key staff the way private equity firms do, with incentive fees or co-investment opportunities alongside the family, CNBC reports. Some offices lend employees money to fund their capital commitments, then forgive the loans or apply future bonuses against them.

PWD has reported the same pattern. Long-term incentive plans and co-investment stakes are spreading through family office pay, according to a Morgan Stanley and Botoff survey. For an industry competing with private equity funds for talent, a co-investment alongside the family is a retention tool no salary can match. Warsh's filings show the upper bound for that approach: for a senior hire with a track record at an office with real deal flow, the carveout can be worth nine figures.