Zlatko Vucetic, CEO of Infront, writes that the leading 500 family businesses are growing at twice the rate of advanced economies – and the related family offices are responsible for managing, investing and preserving significant sums of capital.
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
