Originally set up to manage the fortunes of the ultrarich, the family office model may see some disruption thanks to a new tech startup with deep-pocketed backers and a goal of reaching a wider audience by lowering the barrier to entry.
Arta Finance, a Silicon Valley-based financial technology firm that aims to replicate the family office experience through artificial intelligence, debuted on Nov. 2 with $90 million in funding. Its investors include Sequoia Capital India, Ribbit Capital, Coatue and more than 140 entrepreneurs such as former Google CEO Eric Schmidt and Betsy Cohen, a sponsor of special purpose acquisition companies (SPACs) and venture rounds, and Ram Shriram, an Indian American billionaire businessman and philanthropist.
Arta is building the “digital family office for the world,” said CEO Caesar Sengupta, the former head of Google’s payments operations until 2021, in a TechCrunch interview. “However, this is a highly regulated space, so we have to take very measured and cautious steps and we are also building it in a by-the-book manner.”
The company says it will work to provide access to alternative assets that have so far largely excluded all but the ultrawealthy, like Oprah Winfrey. Family offices typically employ teams of professionals who use sophisticated financial strategies and tap into exclusive investment opportunities that help the rich grow richer.
Winfrey set up a family office in 2010 to handle her personal investments. It was managed until 2017 by Peter Adamson, who ran diversified portfolios for her and focused on farming out her money to outside funds. He brought an endowment-style of investing to her money and embraced hedge funds and private-equity funds, Wall Street Journal reported. Winfrey made her $2.6 billion from her OWN cable network, Harpo Productions, and Weight Watchers.
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Once a relatively unknown concept accessible only to the super affluent, the family office has become more mainstream but continues to be an enigma without a consistent definition, according to Family Business Magazine.
A professional family office organization that provides research, education, networking and advice to family offices, the Family Office Exchange (FOX) defines a family office as “a unique family business that is created to provide tailored wealth management solutions in an integrated fashion while promoting and preserving the identity and values of the family.”
Jason R. Escamilla, the CEO at San Francisco-based Impact Labs Inc. described the family office model to The Moguldom Nation like this:
1) Trusted information sharing about sensitive financial matters
2) Access to a fiduciary — someone who must act in your best interest, and
3) With a wide range of expertise to quarterback, or to fully implement, appropriate strategies.
“Software and technical innovation are lowering the hurdle to cost-effectively offer comprehensive wealth management to a broader set of people,” Escamilla told Moguldom.
Family offices are designed to prepare family members to collectively manage their wealth over multiple generations, Family Business Magazine reported. “They help manage tax, fiduciary and compliance needs; assist in investment management, risk management, estate planning and trust administration; provide support for philanthropic activities; conduct financial education programs for family members; and support family governance and wealth transfer.”
In the last 15 years, Sengupta has worked as head of Google ChromeOS, the company’s desktop operating system, and on the company’s Next Billion Users initiative making products such as Google Pay in India. He left Google in 2021 with scores of colleagues to start Arta Finance.
Sengupta told Techcrunch that he had identified a problem he and his colleagues could relate to in their personal lives.
“We realized that once you get to the $10 million to $15 million range, you can get the private bank to engage with you, and they will help you. But for the vast majority of us, who have some money and are making money, our options are very limited,” he said.
“You can go to the financial planner, but it feels old-school for us tech-savvy people. You can try to do it yourself, but most of us are so busy with our work and life that all sorts of financial planning falls by the side. But if you look closely, certain parts around investing is a big data problem — the kind of problem we can apply machine learning to at scale.”
Arta offers AI-personalized portfolios and alternative investments to accredited U.S. investors. The company hopes to eventually expand to non-accredited investors on a global scale.
The company is targeting those with $100,000 to several million dollars in investable assets, Sengupta said. “Technology and AI have gotten to the point where we can take a lot of what these family offices do, and using technology, scale it in a way that it can be offered to everyone.”
Sengupta said he believes that a high-powered financial strategy and a secure, happy future shouldn’t be the monopoly of the ultra-rich. “Everyone should have a chance to take charge of their financial life in the same way that wealthier and financially savvier people do. So we’re doing this the way we know best – by breaking down barriers to sophisticated finance with technology.”
The company claims to be getting rid of administrative overhead, conflicts of interest, “clunky UIs, and eye-watering fees that often face people looking for financial advice,” according to a press release. It says Arta members will be able to:
- Access Alternative Assets like Private Equity
- Get liquidity without selling stock
- Create their own personalized investing game plan.
- Get savvier together.
- Invest with confidence.
- Align interests with performance-based fees.