Although they can cater to a wide range of services – pensions, tax, philanthropy, lifestyle services – family offices across the globe are focusing on one theme: investment management. Here, they face an increasingly complex environment: diverse asset classes, more information to manage, and the need for transparency and risk reduction, while aiming for better risk and performance management. Against this backdrop, it is key for them to reflect on how they must secure wealth for future generations. A multifaceted goal which can be met by using smart modular technology.

Family offices are shifting capital allocation in the face of inflation, geopolitical unrest, fluctuating policy rates and investor preferences, e.g. towards sustainable investment projects. Against this backdrop, the number of asset classes in which family offices invest is on the rise.

Investments are not only restricted to financial markets but can also include alternatives. Art, private equity and venture capital are gaining a bigger share of allocations. As for the latter two asset classes, family offices are becoming more prominent in deal-making alongside M&A, real estate transactions, and directly investing in businesses. And increasingly more, family office professionals are actively investing in crypto investments.

Family vehicles are also transitioning to a more active fund management approach as a function of portfolio diversification. This general shift in diversification, especially since family offices invest across several investment entities, means increased reporting, accounting and compliance complexity for teams that remain lean.

Lean but growing

Most family offices are lean, employing a team of ten or fewer people, just enough to fill  investment management needs. Additionally, only 26 per cent have succession plans. Many firms also lack governance frameworks, cybersecurity controls, and risk management processes outside of investments. However, as family offices mature beyond the first generation, their assets under management reaching USD1 billion, and they grow in employee size, they are more likely to put more robust protocols in place.

Looking ahead, families are feeling the winds of change ushered in by wider digitalisation and they are changing their approaches to technology.  In some offices, younger generations are coming to the helm and spurring innovation. They are seizing on the opportunity technology to be able to achieve their investment and operational goals, all of which are essential to supporting future generations.

The digital-first family office

Technology, while not the answer to each family office challenge, does play a key role in nearly all of them via its smart application. Tech makes wealth management processes more efficient and cost effective and simplifies complexity across the broad range of allocations family offices have.

For example, family offices are increasingly adopting cloud-based digital platforms to manage portfolios, run analytics, and handle regulatory reporting across the globe. These platforms offer firms a single system that can minimise errors and inefficiencies involving the key value that sits at the heart of systems: data.

Accurate, timely, and consistent data is indispensable to workflow optimisation of all investing-related functionalities for family offices. Such data can be easily accessed via Data-as-a-Service providers that carry data on millions of instruments, across all asset classes and scores of exchanges. Amidst the abundance of available data, only a customised dashboard service that is designed to provide easy access to curated global data and exchanges will unlock the full potential of information needed for sound decision making.

Customised and intuitive dashboard

The need for robust data tools and solutions that allow financial institutions to manage investment decisions, reduce costs and comply with changing market requirements are more critical than ever. By streaming exactly the data a family office professional needs, its intuitive dashboard provides a highly responsive solution that delivers actionable insights, up to the minute pricing and full company reference data, fully tailored to the user’s needs.

In terms of creating continuity between generations, technology also plays a role. AI-powered solutions are available which enable intergenerational conversations via video. Here, a current steward would record multiple videos about the management of the office, family history, investments, or anything else they deem relevant. When they pass, those taking over the helm could directly see their family member before them, asking questions as if they were still in the room. An AI system would choose the appropriate clippings in response to questions.

Such a digital-first approach gives families an edge in their investment management focus and beyond. A development particularly important as family offices begin bringing additional operations under the family office umbrella or merge with other family offices to further optimise resilience, governance and operations.

Supporting future generations

Family offices by nature are generational undertakings, their horizons being 50 to100 years. And since technology will increasingly become the core of their service provision, the question arises of how they can choose vendors that support sustainable investment over lifetimes. Especially since the abundance of software solutions available that can help family offices increase efficiency in managing their wealth can be overwhelming.

When considering outsourcing solutions, family offices should also play the long game. This practically translates to prioritizing vendors that constantly develop products to ensure they are up to date.Vendors should also have outstanding support services and maintain a security-first approach. The latter point is key considering the impact of the European Union’s Digital Operational Resilience Act (DORA) and rising cybersecurity threats.

Finally, addressing the challenges faced by family offices today requires leveraging modular, intuitive technology. These systems provide plug-and-play components that allow users to create workflows for processes, data management, trading, and funds with ease.

They enable the consolidation of diverse asset classes, automate reporting, integrate ESG data, and simplify regulatory compliance. Importantly, such technology can often operate alongside existing legacy systems, offering a seamless transition to more efficient and adaptable operations. Embracing these innovations presents a significant opportunity for family offices to evolve and thrive in a rapidly changing landscape

It found seven out of 10 (70 per cent) of family office professionals including those working for multi-family offices estimate philanthropic giving will rise by 15 per cent or more over the next two years. Around a quarter (25 per cent) believe spending on philanthropy will rise by 20 per cent or more over that period.

Ocorian’s international study among more than 300 family office professionals collectively responsible for around USD155 billion assets under management found the key area for philanthropy is likely to be healthcare and medical research. Around two-thirds (67 per cent) said their family office’s philanthropy is linked to that sector while more than half (51 per cent) pointed to diversity, equality and inclusion.

However, the study shows that family offices want some form of investment return from at least some of their philanthropy – around two-thirds (67 per cent) expect to see some form of return on 25 per cent or more of their philanthropic giving with around one in six (16 per cent) expecting to see a return on 50 per cent or more of their donations.

Lynda O’Mahoney, Global Head of Business Development – Private Client at Ocorian says: “The level of philanthropy from family offices and ultra-high-net-worth families is increasing and they’re less interested in their money going into a vacuum—they are enjoying increasing involvement and want to see tangible outcomes from their donations.

“Flexibility is also important given philanthropic plans are often long-term. We’re noticing an increase in Middle East families setting up Jersey-based charitable structures that allow flexibility to allocate their donations to a UK, European, African or Middle Eastern charity, as they choose, without cumbersome controls.

“This trend aligns with the broader desire for increasing control over investments—people want to maintain a say in what happens to their money. Overall, we see families carefully planning and seeking advice on how to structure their donations so that they can see the impact they seek.”

And, Ocorian writes that it would seem that the more families who choose to set up charitable trusts, the more who ultimately want to. Tracey Neuman, Private Client Executive, at Ocorian says: “Charitable trusts are the new superyachts. You simply have to have one if you are an Ultra High Net Worth individual.”

The firm writes that the Capital Introduction platform marks a significant shift in Bequant’s business model from a Prime Broker to a Principal Trading Firm.

Bequant will now allocate its own capital to traders alongside investors utilising the platform. Additionally, the firm writes that the platform will provide crypto hedge funds with direct access to Bequant’s pool of allocators, ensuring that accurate fund data is presented to allocators so they can make better informed manager selection decisions.

Launching the capital introduction platform is a strategic pivot by Bequant, the firm writes, reinforcing its commitment to supporting funds in all cycles of asset management business.

Bequant writes that it is the only true principal trading firm offering a comprehensive solution supported by a high-quality access platform, sophisticated risk management tools, such as RiskQuant, a recently launched state-of-the-art tool, allowing for a granular view of strategies’ risk/return dynamics, enhancing the decision-making process for investors and allocators, and access to pre-screened funds to resolve a noticeable need for capital introduction services in digital asset markets.

Over the past six years, Bequant writes that it has diligently built and refined systems to manage assets across all pools of liquidity, including over 15 centralised exchanges, more than 30 decentralised exchanges (DEXes), and a dozen-plus OTC liquidity providers. Bequant writes that it also gives access to multiple custodians with off-exchange settlement functionality to address counterparty risks. This extensive network has enabled Bequant to create a comprehensive and secure ecosystem for digital asset management, the firm says.

George Zarya, CEO and founder of Bequant, says: “We are thrilled to launch our new capital introduction platform, which leverages Bequant’s extensive experience and robust infrastructure in the crypto space. Our goal is to capitalise on the software and network we’ve built within the crypto trading community to achieve new milestones in the industry.”

The institute writes that Schroders Family Office Service helped in producing this resource to create publicly available research and practical materials that inspire and guide to family offices and their advisers, who want to use their wealth to achieve positive change in the world.

Through this work, the Impact Investing Institute writes that it hopes to accelerate the participation of wealthy families in the impact investing field. The guide offers practical advice to help families align their values with their wealth and engage the next generation, allowing them to make an active contribution to solving the great social and environmental issues of our time.

The global wealth managed by families is estimated to amount to USD10 trillion. Family offices are in a unique position to apply their values to their investments, unconstrained by the restrictions that can inhibit other institutional investors. This freedom empowers family offices to act swiftly on social and environmental issues they care about while maintaining compelling financial performance.

Drawing on the real-world experiences of family offices that have successfully adopted an impact approach, the institute writes that this guide provides practical steps, information, and resources to help families navigate their route to impact investing.

“It explores how families can go about setting up an impact-focused family office from scratch as well as progressing an existing office from a traditional investment approach.

“Readers can learn about the common steps families are taking, including how to advocate internally for impact, ensuring an inclusive approach and alignment with family values. The report also explores how to create an impact framework, the questions to ask external advisers and managers, and best practices for impact measurement and management.”

“We are excited to release this comprehensive guide to help families and their advisers navigate the world of impact investing. As the impact investing market is growing, more families are looking to align their wealth with their values and our guide will empower them to do that” says Sarah Teacher, Executive Director at Impact Investing Institute. “By sharing practical steps, insights, and resources, we want to help family offices maximise their role as active contributors to solving the pressing social and environmental issues of our time.”

Lyn Tomlinson, Head of Impact and Philanthropy at Schroders Wealth Management, says: “We know many families wish to use the resources they have available, whether that is their land, operational businesses, or their investments to have a positive impact on society and the environment. We also understand that there is a seemingly complex path to navigate for those embarking on this journey. This is why we are delighted to partner with the Impact Investing Institute to commission this important piece of work. “Family Offices: A Roadmap to Impact” is intended to be as deeply practical as it is inspirational. We hope that all family offices can use this knowledge and learning from their peers to implement a legacy they are proud of.”

The report shows that the key concerns for family offices are inflation (80 per cent), rising interest rates (70 per cent), and geopolitical risk (67 per cent). 

Changes to capital allocation expectations show that almost three quarters (73 per cent) of family offices surveyed plan to maintain or increase their exposure to alternative investments in the next 12  months.

Meanwhile, 46 per cent of the family offices expect their private equity portfolio to perform worse in the next 12 months than in the previous 12. This is mainly due to valuation concerns resulting from the stock market decline, which 27 per cent of respondents cited as a market concern. For venture capital, a larger proportion (31 per cent) now plan to allocate less capital, rather than more (23 per cent), in the asset class over the next 12 months.

In terms of the adoption of ESG policy, 37 per cent of family offices have an ESG investment policy, while 43 per cent do not and do not intend to adopt one. 

The report indicated pessimism in family offices with 63 per cent anticipating that their real estate portfolio will perform worse in the coming 12 months than in the previous year. However, Asia is expected to outstrip Europe by 2026 as a wealth hub, with a 33 per cent increase in the number of ultra-high-net-worth individuals (UHNWIs). 

Compared to the study two years prior, nearly twice as many respondents (46 per cent) intend to make changes to their investment strategy or portfolio than in 2020 (23 per cent), citing heightened volatility, rising inflation and interest rates, and geopolitical tension. Some family offices are rebalancing their portfolios away from illiquid assets to capture opportunities in the public markets, while others are focused on private assets to generate returns, BlackRock says.

Other highlights include:

Higher rates have fundamentally changed fixed income and cash markets; geopolitical volatility and supply chain constraints have compelled investors to reassess their geographic exposures; and a growth slowdown and higher market volatility have led many investors to re-evaluate their growth exposure across public and private markets.

Family offices are pursuing more tactical opportunities to capture alpha from an evolving market landscape, which is driving more frequent portfolio reviews and external input.

High-return alternative investments continue to be a focus, but family offices are looking to diversify their private market allocations.

Family offices are seeking external resources to unlock opportunities.

High-return alternative investments continue to be a focus, but family offices are looking to diversify their private market allocations.

The sharp fall in public markets in 2022 exacerbated the denominator effect, pushing many institutions to reduce their private market allocations. In contrast, family offices continue to show a strong preference for private markets, with most looking to maintain or increase and diversify their allocations, BlackRock writes. Performance of alternatives allocations in 2022 was viewed positively, except for hedge funds, which underperformed for over a third of the respondents.

Private markets will remain critical during the current business cycle, just as they were during the pro-growth cycle of the 2010s, but the weight of emphasis on different themes is likely to shift, according to the report. Infrastructure is an area of particular focus, with 42 per cent of respondents intending to increase their allocations to this subsector. This is followed by private credit (28 per cent of respondents intend to increase allocations), private equity direct deals (23 per cent), private equity funds (22 per cent) and real estate (8 per cent).

With liquidity likely to continue to command a premium in private equity and private credit markets, family offices are also looking for opportunities to put their large capital pools to use in areas that offer compelling yield profiles.

The report, which is based on research with senior investment managers and wealth managers working for family offices with a total of USD98.4 billion in AUM shows increasing use of alternative assets in general and illiquid assets including private debt, private credit and real estate in particular.

Almost all (97 per cent) family office professional investors interviewed agree that the impact of COVID-19 accelerated the integration of succession planning into long-term strategies. 

This has translated into increased education for younger generations and the study shows they are having a bigger influence on investment planning. Nearly two out five (39 per cent) family office executives strongly agree that younger family members are driving increased interest in sustainable investment and another 58 per cent slightly agree.

Nearly nine out of 10 (88 per cent) agree that family offices are increasingly diversifying into a wider range of asset classes with illiquid assets including private debt and real estate as the key components of the diversification drive.

Around 90 per cent questioned expect increased demand from family offices for illiquid assets over the next two years.  The main motivation for this is their need to protect against macro uncertainty with private debt investments often offering strategies providing a floating rate coupon which has the potential to be a natural hedge against inflation. 

Family offices also highlight the fact that private debt offers new investment opportunities and a growing array of assets as well as its role in the diversification of portfolios and access to ESG benefits in sub-asset classes in private debt.

The study found widespread agreement that the highest quality private debt instruments provide safety. Almost all (99 per cent) questioned pointed to the combination of attractive yields and structural protections such as debt covenants and credit enhancement as offering a high degree of safety. That is being bolstered by the expectation of improved regulation in the sector – more than a quarter (26 per cent) expect dramatic improvements in regulation for private debt over the next two years while 52 per cent expect slight improvements.

Some 80 per cent questioned expect family offices to increase allocations to private debt over the next two years with nearly one in 10 (9 per cent) predicting dramatic increases. 

Customisation of alternative credit solutions for family offices is also set to expand strongly as demand builds for more bespoke maturity and return profiles. Nearly nine out of 10 (87 per cent) family offices expect increased customisation of alternative credit solutions over the next three years. Around 16 per cent of the senior executives at family offices forecast dramatic growth in customisation with just 2 per cent predicting customisation will decline over the period.

Ben Churchill, Chief Operating Officer, Aeon Investments says: “Family offices need to deliver stable and predictable income and that is driving increased interest in private debt with residential real estate and specialist areas of corporate finance proving to be the most popular asset classes to offer yield and capital preservation. 

“Financial institutions, however, need to recognise that family offices are discerning when it comes to fee structures.”

“Our company has grown significantly in recent years. The core of our philosophy is providing the highest quality of professionalism in the support and advice we give to our clients. We are delighted to have two experts whose knowledge and experience will help us to continue strengthening our business operations,” says Philipp Lennertz, managing partner of the family office.

As Head of Fund Administration, Gaede will oversee the finance team, leading the administration of funds for Lennertz & Co’s alternative investment platform. The 31-year-old previously worked as a finance manager at BlueYard Capital, a Berlin-based venture capital fund, and at Mola-Administration, a fund administrator for private equity and venture capital funds in Hamburg. Gaede has seven years of professional experience in fund structuring, administration, accounting, regulation of venture capital and private equity funds.

In Caroline Militzer, Lennertz & Co writes that it has gained an experienced Head of HR. The 41-year-old previously worked for the Otto Group from 2006 as an in-house consultant, then from 2012 in change management and organisational development. She led projects  implementing new leadership and organisational models and introduced modern HR instruments. To Lennertz & Co, Militzer brings expertise in project management, organisational development and human resources, the firm says.

Research from Global Impact Solutions Today (GIST) and Barclays Private Bank, looks at data from 300 private wealth holders from 33 countries, with an average of USD833 million assets under management. 

According to the research, the majority of wealth holders already take sustainability into account when investing, with 80 per cent saying that climate change is a relevant factor in the decisions they make for their investment portfolio. 

Furthermore, more than two-thirds, 67 per cent, of the wealthy individuals and institutions that responded say they would also like family portfolio to meet the requirements of the 2c warming scenario outlined in the Paris Agreement.

Sustainable investments are soon expected to dominate these portfolios. Those that are already active in sustainable investing say it will make up an average of 47 per cent of their portfolios by 2022, and 54 per cent by 2027.

Even those self-described “traditional investors” are adopting ESG considerations into their portfolios, with nearly half now incorporating it into their decision-making.

Dr Rebecca Gooch, senior director of Research at Campden Wealth, which conducted the research, says that private investors are opting to invest sustainably due to a combination of climate and investment concerns. 

The vast majority, 86 per cent, of high net worth individuals, family offices, and foundations believe their private capital will be essential in addressing climate change.

Meanwhile, investment returns are also making sustainable investing more attractive. More than two thirds, 70 per cent of those surveyed, see the transition to a global net zero emissions economy as “the greatest commercial opportunity of our age”.

“Sustainable investment returns are now successfully competing against those of traditional investments, and evidence of their effectiveness at tackling global challenges is becoming increasingly hard-hitting. In turn, a growing number of private investors are opting in,” says Gooch.

“Given that single family offices alone manage more than USD6 trillion in assets worldwide, this is helping to propel the industry forward at a time when sustainable solutions are needed most.”

The sustainable investing push could also be aided by an oncoming global wealth transfer, which is expected to put trillions of dollars into the hands of younger generations in the coming years. 

Previous research from Allianz in 2019 found that millennials are more likely to take broad societal issues into account when making investment decisions.

However, doubt has been cast over the reality of their ESG intentions. A report from UBS in 2020 noted that while the majority of family offices regard sustainable investing as important for their legacies, it remained “unclear whether good intentions will turn into reality”.

“To regenerate our environment, economy and democracy, good intentions alone will not suffice,” says Gamil de Chadarevian, founder of GIST. “Prominent families, like those who contributed to the research, have a combination of expertise and capital to play a leading role for the future of our planet.”

Private wealth holders are currently using a range of approaches to sustainable investing. A handful, 30 per cent of respondents to the recent survey, are targeting investments that directly support a transition to a low carbon economy. Meanwhile, just under a quarter, 24 per cent are taking an exclusionary approach, seeking to avoid any companies that they assess as major contributors to the issue of climate change.

Most of these investors are allocating capital directly to companies, projects, and real assets, compared with 41 per cent of portfolios which are invested through indirect strategies run by asset managers and other intermediaries.

Damian Payiatakis, head of Sustainable and Impact Investing at Barclays Private Bank, says that private wealth holders see climate change as the next systemic challenge we have to face globally.

“From our conversations, I hear them express both a responsibility and an opportunity to use their capital at this pivotal point,” says Payiatakis.

“While we see heightened awareness, action does not always immediately follow. Moreover, navigating the rapidly growing green investment market is increasingly difficult,” he says.

Portfolio transitions may also be being held back by fears that companies’ claims about their environmental impact may be misleading, or “greenwashed”. Three quarters of private wealth holders, 76 per cent, say they are concerned about making an investment that has been greenwashed. 

The survey, ‘Investing for Global Impact: A Power for Good’ finds that private investors would they would be most reassured by robust measurement and reporting, followed by trust in the leadership of the invested company or investment, and then the track record of past impact delivery from the company or fund. 
 

In July, we announced a venture with CIIC to provide services to HNWI’s in China and Hong Kong, and I am reflecting here on some of the differences in wealth transfer approach from clients in Asia and their Western counterparts.

The Asia Pacific region is one of the fastest growing wealth centres in the world. According to Capgemini, the region has seen the highest percentage growth and the largest population of HNWI’s in the world for five of the past six years.

Wealthy families in the region are dealing with many of the same issues as their counterparts in the West in transferring wealth from one generation to the next and ensuring the needs are met across multiple stakeholders with different motivations. 

As a global multi-family office firm we now have the luxury of looking at how our clients from different regions and cultures may be able to benefit one another.

What follows are some key learnings across cultures and motivations that we share with clients considering how to best transfer wealth from one generation to the next.

Have candid conversations about succession with family

One stark difference between Asian and Western cultures is the comfort with which families have conversations about planning for the passing on of elder family members. Discussing death is considered taboo in many Asian countries, which unfortunately means important conversations about wishes and motivations often do not happen before it is too late.

We advise our clients to begin these conversations early with their younger beneficiaries, discussing everything from the particulars of passing on a business to investment goals to personal passions. Depending on comfort levels, they may want to involve advisors in these conversations, which can help bridge gaps and differences of opinions between generations with practical guidance on how to address seemingly divergent concerns and preferences.

Be transparent and creative about philanthropic and sustainable investment interests

HNWI’s in the West have been much more progressive about putting their assets towards philanthropic and sustainable investment interests than their peers in Asia. However, we are starting to see a shift with the younger generations of our Asian clients, which mirrors what we have seen for several years with our Western clients.

Beneficiaries of family wealth are more frequently looking to give money away to charitable pursuits that match their passions or looking at impact investing to make a difference as well as a profit. For years, we have been advising Western clients on how to achieve these aims whilst still honouring the wishes of the older generations.

Whether through creative investment vehicles or understanding tax regimes, we have been successful in guiding clients through the transfer of wealth and differing opinions on how to deploy it. Through these lessons learned, we can better advise clients on meeting multiple goals that allow, for example, the older generations to preserve and pass on their wealth and legacy whilst the younger generations can make their own mark that aligns with their values as well.

Look East for progress on inclusiveness

Our Asian clients have been very progressive in terms of fostering an environment for high-achieving women to thrive. Indeed, more female entrepreneurs on the world’s list of billionaires are from Hong Kong and China than anywhere else globally.

One of the significant differences we see in Asia vs the West is how often women and younger generations are included and valued in traditionally older financial structures usually dominated by men. These groups are reshaping family businesses, relationships, and investments in Asia, and pushing innovation on how we think about dual financial and social legacy.

Whilst there is certainly more work to be done on a societal level in the West to bring more openness and resources to help women start business and generate their own wealth, wealthy families and individuals should not lean on tradition by only involving male beneficiaries. They could be compromising the potential of their business, assets, or legacies by ignoring their female beneficiaries’ ideas and values.

In an increasingly global world, we must look outside of our native regions for ideas and opportunities. It is an area in which multi-family offices have an obligation and a unique opportunity to advocate for their clients and apply best practices from elsewhere. With Asia and the West growing their wealth at a blistering pace, we must continue to look across borders and hemispheres for best practices on preserving and growing wealth and legacies.

Max Eppel is CEO of McFaddens and Co, an international multi-family office providing a suite of investment and wealth management services, with offices and experts located in the Middle East, Europe and APAC.