What process does a multifamily office use to select, monitor, and terminate external investment managers?
A multifamily office usually starts with the portfolio mandate, screens managers, completes investment and operational due diligence, and documents its decision. After appointment, it reviews performance, risk, people, process, fees, compliance, and mandate fit. Termination follows defined review criteria, committee approval, and an orderly transition that protects liquidity and records.
1. Selection starts with the mandate
We begin with the investment policy, asset allocation, liquidity needs, risk limits, and the role the manager must play. The search then creates a candidate universe and applies quantitative and qualitative review. CFA Institute describes manager selection as a combination of performance analysis, investment due diligence, and operational due diligence. That work examines how returns were produced, whether the process is repeatable, and whether the firm, people, operations, vehicle, and terms are suitable. Source: CFA Institute, Investment Manager Selection.
2. Due diligence and approval
The office reviews track record, benchmark fit, risk, portfolio construction, fees, capacity, conflicts, reporting, and team stability. It verifies regulatory status and disciplinary history through Form ADV and public regulator records when the manager is an investment adviser. Investor.gov recommends asking about services, fees, conflicts, registration, and legal or disciplinary history before hiring an adviser. We record the analysis, questions, unresolved issues, and approval authority in a manager file. The investment committee then decides whether the manager belongs in the portfolio and at what size. Source: Investor.gov, Investment Advisers.
A formalized single family office should have policies and processes in place that force a certain level of due diligence that takes at least 40 hours to execute to ensure that no snap decisions are made to invest in a company without proper investigation of the offering and team behind the company.
3. Monitoring, watch lists, and termination
Monitoring tests whether the manager still fits the mandate. Reviews commonly cover returns against the appropriate benchmark, risk and drawdown, attribution, portfolio exposures, fees, compliance, service quality, staffing, ownership, investment process, and operational controls. A public institutional policy from the University of Missouri System calls for quarterly manager reviews and individual consideration of circumstances affecting each relationship. We place a manager on a watch list when concerns need follow-up. Termination may follow persistent mandate failure, material process or team change, serious operational or compliance concerns, or a decision that another manager better serves the portfolio. We document the reason, check notice and liquidity terms, approve the transition, and monitor the replacement. Source: University of Missouri System, Policy for Investment Manager Selection, Monitoring and Retention.
Related guides
- Family Office Due Diligence: A Practical Guide for Multifamily Offices
- Access to Alternatives Through an MFO: A Practical Guide for Families
- Cross-Border Families and Multifamily Offices: A Practical Guide