Family offices in Luxembourg: an upward trend

In the midst of a global unprecedented surge in family offices, Luxembourg has emerged as a hub for optimising various setups. The demand for uncorrelated asset classes is also soaring as diversification becomes increasingly important.

IQ-EQ recently hosted an event with the Luxembourg Association of Family Offices (LAFO), Twelve Capital, J.Safra Sarasin and Luxembourg for Finance (LFF) on family office structuring in Luxembourg and uncorrelated alternative assets. Our panel of experts delved into global family office trends, structuring options and conducted an in-depth exploration of uncorrelated asset classes.

Here, we discuss the highlights of their discussion.

Wealth management is an evolving landscape

Family offices have emerged as powerful entities in the investment landscape, with an estimated 9,100 single family offices worldwide as of 2022. However, they’ve had to evolve with their rise in popularity, and over recent years have been strongly influenced by global circumstances.

Simon Gorbutt, the deputy CEO of LFF, emphasised the significance of events such as elections, regional competitiveness, and the need to mobilise capital for sustainable transitions. Despite complexities like higher interest rates and geopolitical tensions, family offices are focusing on asset allocation and rebalancing.

The dynamic demands of ultra-high-net-worth individuals (UHNWIs) have also been evolving over the last decade. Both family offices and UHNWIs are now looking beyond traditional investment structures, with investment strategies moving more into the alternative space.

Succession planning is a key concern

Ilias Georgopoulos, IQ-EQ’s Global Head of Private and Institutional Asset Owners, advised that there’s a cultural shift towards greater involvement of younger family members in wealth matters, with succession planning being a top priority for many family offices.

Citi Private Bank’s Global Family Office Survey Insights 2023 highlights preparing the next generation for responsible wealth ownership as a key concern; 60% of family offices ranked it as more important than macro considerations like inflation.

This is causing a cultural shift impacting investment strategy and governance.

The importance of a sustainable ethos

Family offices are increasingly interested in sustainable and impact investing, moving towards intentional sustainability approaches beyond simple exclusion-based strategies.

A survey from UBS has shown that families surveyed said their exclusion-based strategies would drop from 37% to 24% in five years, with more intentional impact investing set to rise. The panel pointed out that private markets provide sustainable and impact investing strategies, where investors can have more control, as well as more opportunity to scrutinise and question investees.

Private markets are in high demand

While family offices globally slightly reduced their allocation to private equity in 2023, specific segments like private debt and private equity secondaries are experiencing high demand, including from family offices.

The 2023 UBS survey shows that 41% plan to increase their private equity allocations and an additional 42% plan to maintain their private equity allocations over the next five years.

The panel analysed how family offices are exploring new perspectives to diversify their portfolios. They are seeing a growing interest for insurance-linked securities (ILS), which are uncorrelated with financial markets and are a useful tool for investors to use to optimise portfolio diversification.

The growing importance of governance

Single family offices (SFOs) are undergoing a notable transformation, gravitating towards heightened sophistication by embracing institutional-grade practices. According to data from Fintrx, approximately 40% of the most sizable SFOs, those boasting assets exceeding $1 billion, have implemented structured governance frameworks that actively engage family members in strategic decision-making.

This shift signifies a compelling convergence between SFOs and institutional asset owners, such as pension funds and sovereign wealth funds. The growing importance of governance from family offices will further position jurisdictions like Luxembourg who have the right governance toolkit and regulated structures and products that align to the family office’s values.

Why choose Luxembourg?

Pascal Rappalino, Chairman of the LAFO, highlighted that Luxembourg is a hub for family offices as it’s a jurisdiction of choice for asset protection, planning, and international investment. It has a unique regulated environment tailored towards multi-family offices – thanks to a 2012 law that ushered in comprehensive rules to ensure a high level of service and investor protection.

The panellists mentioned that they are seeing increased interest in private investment funds from UHNWIs, which is a testament to its increased sophistication and evolution.

Insights from the discussion underscore the dynamic evolution of family offices amidst shifting global trends and the increasing demand for sophisticated investment strategies. As family offices navigate the complexities of succession planning, alternative asset allocation, and sustainable investing, they are increasingly turning to jurisdictions like Luxembourg for optimal structuring and access to diverse investment opportunities.

If you’re interested in learning more about any of the topics mentioned here, feel free to contact us to learn more.