Family Offices Are Emerging as Noteworthy Investment Players
There are approximately 8,000 family offices (FOs) doing business around the world. Within five years, it is estimated that that number is expected to climb to 11,000.
This may come as news because most FOs serve only ultra-high-net-worth clients, helping them grow and preserve their wealth. But, despite this rarified clientele, FOs are emerging as a powerful force in the investment community.
“By 2030 family offices will manage approximately $9.5 trillion in AUM on behalf of individuals and families,” says Susan Lindeque, CEO, of Avestix, a Florida-based investment firm. “This is especially remarkable when you consider that FOs currently manage about $5.5 trillion in assets and only a few years ago — 2019 — they oversaw $3.3 trillion.”
What accounts for the growth in FOs? According to Defining the Family Office Landscape, a recent report from Deloitte, an unprecedented surge in individual and family wealth in recent years has created a need among high-net-worth investors for guidance.
“Women now serve as the principals of 15 percent of family offices worldwide, reflecting a drive to create their own wealth and to take on leadership roles within the family enterprise,” according to the Deloitte study. In North America, Deloitte says, women serve in leadership roles in 12 percent of family offices. Similarly, approximately 20 percent of FOs in Europe include women in executive slots. So do 18 percent of FOs in the Asia Pacific region and 21 percent of African-based family offices.
“It’s estimated that — internationally — women are set to gain access to about $80 trillion in assets in the coming decades as part of the so-called ‘intergenerational wealth transfer’,” says Lindeque. “As women take control of these assets, it’s understandable they may prefer guidance from female financial advisors who better understand their needs. Smart family offices recognize this and are staffing accordingly.”
Deloitte also found that nearly 75 percent of FOs have established oversight boards to oversee operations. Sixty-four percent of those now include board members who have backgrounds in strategic planning, finance, tax, and legal services, while about 58-eight percent of boards have expertise in investment- and asset management.
Another trend Deloitte identifies is FOs branching out beyond their native shores. Whereas about 28 percent of family offices have multiple branch locations and most North American and European FOs operate secondary offices within their region, six in ten FOs in the Asia Pacific sector have opened offices in North America and Europe. Deloitte estimates that about one in 10 FOs will likely open secondary locations.
In other words, the family office landscape is about to get even more crowded and more competitive.
For those family offices that hope to stand out in what will likely be a hyper-rivalrous environment, Lindeque suggests considering expanding the services they offer their clients and their areas of expertise.
“When I meet with family office executives, I tell them they should be thinking about the investment preferences of the next generation,” she says. “For instance, younger investors are increasingly interested in impact Investing, which is focused on generating returns, but also incentivizing societal enhancements.”
She also advises FOs, hoping to carve out competitive advantage, may want to brush up on their understanding of alternative investments, such as commercial real estate and investment opportunities in artificial intelligence (AI).
“Those family offices that are not keeping pace with advancements in AI are running the risk of obsolescence,” Lindeque says. “One recent study found that 80 percent of FOs now include AI-related opportunities on the top of the investment recommendations they make to their clients. And that same percentage says that AI will dominate leading investment themes for the next five years.”
