Family offices, wealth management firms that cater to the specific needs of ultra-high-net-worth families, are experiencing a boom. As wealth continues to concentrate at the top, the demand for sophisticated wealth preservation and growth strategies increases.
The number of established family offices is on the rise globally. It was driven by multiple factors such as rising wealth concentration, generational shifts, and the pursuit of more personalized and direct investment strategies. A report by The Economist Intelligence Unit and DBS explained several drivers of the increase in family wealth, as follows:
Growth of wealth in Asia: For instance, Asia has become the world’s single wealthiest region for the past five consecutive years. The rapid growth of businesses in Asia has contributed to the rise of Asian family wealth, leading to the establishment of more family offices in the region.
Succession planning: Succession planning is a key issue for family offices globally. In the West, a significant amount of wealth will be transferred between generations in the next decade, while in the East, the amount of wealth transfer is expected to grow rapidly due to the lower average age of HNWIs in the region. This need for succession planning drives the establishment and growth of family offices.
Philanthropy and impact investing: In the West, philanthropy and investment goals are often intertwined, with a rise in environmental, social, and governance (ESG) strategies and impact investing. In the East, family offices tend to view philanthropy and investment as more distinct. The different approaches to philanthropy and investment also contribute to the establishment and growth of family offices globally.
Main Trends in Family Offices – 2024
Trend 1 – Diversifying across private markets
Based on our analysis, family offices are evolving their strategies to navigate the complex world of wealth management. The trend leans towards private markets like private equity and venture capital, offering potentially higher returns and diversification.
While private equity remains popular, family offices are diversifying into private debt, infrastructure, and funds to manage risk and access growth opportunities. According to the report by Deloitte Private, family offices are shifting their investment strategies from public markets to private equity, a trend that persisted despite 2023’s challenges. By the end of 2023, they allocated 30% of their investments to private equity, up from 2021, while public market investments decreased to 25%. This shift reflects a broader market trend, with more companies seeking private equity funding. Private equity appeals to family offices due to its potential for higher long-term returns, alignment with their long-term outlook, and flexibility in holding assets and adjusting return expectations, providing a competitive advantage.
Trend 2 – Growing allocations for sustainable investing
Sustainability is also a growing focus, with family offices integrating ESG factors into their investment decisions. Technological advancements play a key role as well, with family offices adopting tools like data analytics, AI, and blockchain to gain deeper insights and improve efficiency. Finally, successful family offices prioritize robust succession planning to ensure a smooth wealth transfer and long-term preservation for future generations.
According to a Forbes article citing a Campden Wealth Study of Family Offices, sustainable investing is gaining significant traction. The study shows a jump in portfolio allocations towards sustainable investments, rising from 20% in 2019 to 36% in 2020. This trend is expected to continue, with projections reaching 47% by 2022 and a staggering 54% by 2027.
Family offices with experience in impact investing are involved, suggesting that the investment is likely related to the impact and sustainable investing market. For instance, Gunung Capital was included as one of the seven investors in BlueMark’s series A funding round with $10 million in capital commitments from a diverse group of seven investors. This investment will take part in enhancing BlueMark’s abilities for verifying impact and gathering intelligence in Asia, a region experiencing increased interest in sustainable investments and impact verification services.
As a conclusion, the evolution of family offices reflects a dynamic landscape where wealth management intersects with social responsibility and long-term sustainability. With a growing emphasis on private market diversification and sustainable investing, family offices are poised to not only preserve and grow wealth but also contribute positively to global economic and environmental challenges. As they navigate through these trends and challenges, family offices remain instrumental in shaping the future of wealth management, ensuring prosperity for current and future generations while fostering a more sustainable and equitable world.
