A guide to family investment partnerships

Investment partnership basics

Family investment partnerships are tools that allow families to strengthen financial connections across multiple generations while garnering access to best in class investments and advice. Investing through family investment partnerships can increase the ability to centralize management and investment decision making, efficiently manage diversified holdings across several asset classes, and obtain economies of scale needed to access favorable investments and investment managers at reduced costs. These benefits can be achieved without compromising the flexibility that individual family members desire to customize their portfolio to meet their investment goals.

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Structuring an investment partnership

A family investment partnerships structure is typically comprised of one or more investment partnerships (IPs) through which its members may invest in marketable securities, hedge funds, private equity, real estate, venture capital, and other illiquid alternative investments. The characteristics of these partnerships may vary depending on the asset classes in which any single family investment partnership invests.

The structures vary based upon the chosen asset classes, level of desired investment flexibility, and the liquidity of underlying investment assets. While there is no "one-size-fits-all" FIP structure, the examples illustrate structures frequently formed by family groups seeking to invest across multiple investment strategies or asset classes.

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Managing an investment partnership

Efficient management practices drive the success of a FIP structure. It is important from the outset to thoughtfully communicate with various stakeholders, including the family, attorneys, custodians, accountants, investment advisors, and tax professionals, about how the FIP structure will be administered. Committing these procedures to writing, either in the operating agreements or procedures manual, is a leading practice. Deciding who will maintain the IP accounting, including capital account maintenance, is one of those decisions.

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Investment partnerships and global families

Families and investment opportunities are increasingly global. Financial success provides individuals the freedom to choose the place they will live, raise a family, invest, and accumulate wealth. IP structures frequently try to accommodate families with members residing and investing in multiple jurisdictions. Serving the needs of increasingly mobile families and their global investment portfolios creates additional administrative and regulatory burdens. It is critical to evaluate structural alternatives to accommodate the needs of global families.

Some of the critical issues include:

• Choice of the appropriate entities and jurisdictions to accommodate non-US investors and investments
• Foreign and state income tax filing requirements
• US and state income tax withholding on foreign or non-resident investors
• Effective planning for the use of foreign tax credits to reduce the impact of investing in multiple jurisdictions
• Risks associated with investments denominated in currencies other than the dollar
• Foreign bank and financial account reporting
• Foreign estate, gift, and wealth taxes

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How Deloitte can help

Deloitte can field a world-class team to guide family offices through these critical conversations and clear a path forward. We have a global team of 1,800 professionals across the Deloitte Touche Tohmatsu Limited network of member firms who focus solely on the specialized needs of the ultra-affluent, including families with multigenerational wealth, entrepreneurs, family offices, and fiduciaries. Our professionals provide advice and deep experience in a wide range of specialized areas—from tax technical to cyber risk management—and have access to a global network and emerging markets.

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