Open Markets Applauds Waters and FSC for Moving to Protect U.S. Financial Markets from Secretive Billion Dollar Investment Funds

Family offices like Archegos are gobbling up torrents of financial assets without regulators knowing

WASHINGTON — The House Financial Services Committee today voted en bloc 27-22 in favor of passing a package of bills aimed at tackling the problems revealed by the GameStop volatility and the collapse of Archegos. One of the bills, H.R. 4620, “Family Office Regulation Act of 2021,” would bring new, much-needed transparency to the $6 trillion in investment funds directly controlled by wealthy families. [Open Markets previously published a fact sheet outlining the dangers of keeping such “family offices” in the shadows].

In response, Alexis Goldstein, Financial Policy Director at the Open Markets Institute, issued the following statement:

“The Open Markets Institute applauds the Financial Services Committee’s leadership for its efforts to ensure that regulators bring powerful family-controlled investment funds out of the shadows and into regulator’s view. We commend Chairwoman Maxine Waters (D-CA) for spearheading this work.”

“The meltdown of Archegos Capital Management earlier this year showed the urgency of bringing transparency to such family-controlled funds — often called “family offices.” Archegos exploited derivatives and leverage extended by Too-Big-To-Fail banks to transform $200 million in investments in 2013 into a reported $20-billion position before its failure. Archegos’ collapse caused over $10 billion in losses across some of the world’s largest banks.

“The 2010 Dodd-Frank Act brought crucial transparency to hedge funds and private equity firms, but it carved out family offices from the measures. Unlike these other private funds, family offices do not have to register with the Securities and Exchange Commission, file public reports on their positions, or report to regulators details about the leverage they employ. The result is massive and a dangerous loophole in the U.S. regulatory system. The over 10,000 private family offices manage nearly $6 trillion dollars in assets— more than all U.S. private equity firms put together.

“There may be many more Archegos-size risks hidden from regulators, lawmakers and banks alike. To take one example, Amazon founder Jeff Bezos’ family office, Bezos Expeditions, is estimated to have over $200 billion in assets — 10 times larger than Archegos was at its peak. Family offices are also emerging as significant investors in cryptocurrency hedge funds. Assets under management in cryptocurrency funds reached $36.9 billion in July 2021. A 2020 report by PwC found that nearly half of all investors in these crypto private funds are family offices.

“Left unseen, the risks posed by the unregulated, multi-trillion dollar family office market could spark the next financial crisis. We applaud Chairwoman Waters and the House Financial Services Committee for taking this first step to bring transparency to the growing family office sector.”

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