Our Global Head of Private and Institutional Asset Owners, Ilias Georgopoulos, recently sat down with the Sovereign Wealth Fund Institute (SWFI) to discuss his career so far, the future of family offices and how sovereign wealth funds and family offices are similar. You can read parts one and two of the interview on the SWFI website, or continue reading for the key takeaways.
In what ways are family offices like sovereign wealth funds?
We’re seeing a real shift among family offices into the domain of sovereign wealth funds (SWFs), where they are often finding themselves looking into the same investment targets. The reason behind this is a similar objective: the preservation and protection of wealth for future generations.
Just like SWFs, family offices have significant dry powder, and can bring sizeable sums of capital to the table to support larger deals and, in most cases, are faster to put money down than private equity firms. They have longer-term investment horizons and can direct their money without the worry of fund expirations and the need for immediate growth. And for many, this is bolstered by their experience in operating multinational companies with success.
In line with this convergence between family offices and SWFs, IQ-EQ has structured an “Asset Owners” segment which includes both private and institutional asset owners. In making this evolution, we’re bringing together what we see as two main types of wealth holder, recognising the increasing sophistication, institution-like practices and service expectations of ultra-high-net-worth (UHNW) families and their family offices and the fact that private and institutional asset owners are more aligned than ever before.
How will family offices shift the investment landscape in the coming years?
As family offices become more and more sophisticated, they’re becoming a real force to be reckoned with, increasingly actively managing their allocations like asset managers do but with greater flexibility in their investment horizons.
Family offices are defensively positioned amid market volatility. With inflation high, central bank liquidity flagging and interest rates rising, family offices are reviewing their strategic asset allocation. Their allocations to alternatives have increased considerably over the past years as they have increased investments in private equity, real estate, hedge funds and private debt.
We are seeing more and more family offices investing directly into the private markets. According to recent research by Dentons, 60% of family offices believe that private markets often offer the best opportunities now, rising to 72% in North America. 63% make direct investments. This is a clear trend that we see with our clients and shows the sophistication of this segment.
You mentioned family offices and SWFs are focusing on the same types of investments. Can you elaborate on this?
Typically, SWFs are focusing more and more on longer-term value and sustainable investments. SWFs’ interest in ESG has grown significantly in recent years: as of July 2022, according to Kearney analysis, 75% of SWFs had an ESG policy and 30% had set a carbon emissions target. These percentages will only continue to increase.
Family offices share the same long-term investment horizons as SWFs and more than half now have allocations in sustainable investments, with UBS observing a recent shift in sustainable investments to more impactful strategies – especially as the next generation become more involved in investment decision-making.
Do SWFs and family offices share similar support/infrastructure requirements?
SWFs are already at a high level of institutional grade governance. In the family office space, there is a clear evolution underway and enhanced governance is already top of the agenda.
UHNW families are evolving generationally and geographically; for example, a third-generation family will typically have members residing in multiple parts of the world, each bringing with them different investment interests and tax regimes to contend with. This complexity impacts the global governance and requires a mix of investment structures – trusts, SPVs, domestic and international funds – and a single operation that can handle their various needs in full. Large SFOs are increasingly akin to institutional asset owners operationally.
When we look into the statistics, according to FINTRX, only 16% of family offices make decisions through a formal governance structure involving family members, but this rises to 40% for the largest single-family offices (SFOs) and family enterprises – those with over $1 billion in assets. As family offices become more sophisticated, their need for better governance and technology increases. Certainly, at IQ-EQ, we’ve been seeing a growing interesting in our asset owner solutions, including our multi-asset-class portfolio monitoring platform, among both family offices and SWFs. So, yes, there is convergence between private and institutional asset owners in terms of governance too.