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Family offices: the new powerhouses of asset management

17 Jan 2024

By Thomas Ibanez, Sales Director, French Market

By 2022, there were an estimated 9,100 family offices worldwide. Initially dedicated to the sole management of wealthy families’ resources, their role has gradually evolved towards structuring investments and influencing corporate governance. They should now benefit from favourable sectoral and macroeconomic trends to sustain their growth in 2024.

A favourable environment

At first designed to safeguard, grow and transmit the assets of high-net-worth individuals (HNWIs), family offices bloomed and multiplied throughout the 20th century with the increasing number of large fortunes. Today, 40% of them are concentrated in the United States, where the ultra-rich are mostly located, followed by Asia, where economic development and the emergence of new millionaires account for 27% of these structures. One-fifth of them have emerged in this region over the past 20 years, demonstrating a real underlying trend. Meanwhile, Europe accounts for 25% of family offices, ranking third in terms of average number of HNWIs.

It’s true that many factors have fostered macroeconomic instability, such as inflation, soaring interest rates and the resurgence of geopolitical tensions, and this has not helped family investment. But these hurdles have only slowed the trend of structural growth in their investments: 41% of family investors increased their allocations in 2022, compared with 65% in 2021 on a global scale. This is particularly true for private equity, family offices’ favourite asset class, which accounted for 21% of their investments in 2022, marking an increase of 2 percentage points since 2021.

An increasing scope of expertise

Moving from services focused on traditional wealth management, family offices have gradually conquered new fields of investment. Real estate, infrastructure, private debt, philanthropy (which has been on the upswing in recent years): they are now specialising in a broader range of alternative asset classes and sectors in order to offer holistic investment solutions.

A recent study by Credit Suisse specifically reveals a growing demand for private markets. According to the bank’s survey, family offices have closed an average of seven private equity deals over the past two years, and only 13% have not explored this option. In 2022, private equity was the leading asset class for family offices, accounting for 21% of their allocations; 12% through direct investment and 9% via funds.

The range of services they offer now encompasses more than investment advice and third-party management; that is also taxation, corporate structuring, and transfer, as well as the production of accounting and sustainability reports.

Family offices also now play a significant role in the allocation of capital and the exercise of voting rights. Indeed, 40% of leading family offices (i.e. those with over a billion dollars under management) have institutionalised decision-making within administrative bodies bringing together family members and their advisors, as asset management companies usually do. This clearly underlines that the nature of these players is increasingly converging with that of pension funds and sovereign wealth funds. Their solid professionalisation has made them a must: they are courted both by wealthy families and by funds wishing to distribute their products through them.

Strong updrafts to sustain growth

Against this backdrop, Barton analysts forecast that the milestone of 10,000 family offices present worldwide will soon be reached, probably within the next two years.

Changes in family structures are also contributing to this trend, with financial management decisions being increasingly distributed throughout families where they were previously centralised in the hands of a single member, often the “patriarch” figure. This mutation has been leading to new, greener, more responsible investment habits, but also to greater focus on investing in local businesses and new technologies – sectors that were previously poorly mastered by advisors and their clients accustomed to the former “new capitalism”. Indeed, more than half of family offices have invested in sustainable assets to date, and 40% of them even declare that most of their portfolios will be sustainable by 2025.

Faced with these developments, the ever-changing financial landscape and the emergence of new nomenclatures such as the ELTIF 2.0 regulation, wealth management professionals must continually adapt to provide their customers with the best possible support. They are doing well so far, strengthening the role of family offices in financing the economy. The year 2024 should prove more propitious as markets normalise, with inflation on the way down, even though central banks are likely to maintain a relatively restrictive monetary policy.

Consolidation in the asset management and financial services sectors will also play its part, ensuring the emergence of companies that are sturdier and more comprehensive in their services, both in France and internationally. As a result, individual and family investors are likely to pick up the pace again, calling on their advisors to fully seize the trend observed to date and move up a gear.

Working with IQ-EQ has been seamless – you and your team understand our business, advise us appropriately, and handle your side of our collective partnership so that we can focus on making good investment decisions. Evan Gibson SVP, Merchants Capital

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