To Remain Relevant, Family Offices Must Broaden Their Focus
Worldwide, there are now approximately 8,030 family offices doing business, and — according to a new report from Deloitte — the number of firms could go as high as 10,700 by 2030. Almost half (nearly 4,200) will operate in North America alone.
In other words, even the most established family offices — firms focused on managing the investing and wealth-creation needs of high-net-worth families — are now doing business in a field that is about to get even more competitive.
[Learn why impact investing is capturing the attention of investors.]
Those family offices that hope to stay relevant and continue meeting the needs of their clients may wish to consider broadening their business models beyond simply managing the finances and investments of their clients.
Right now, most family offices in the U.S. tend to focus on the following:
Intergenerational Wealth Transfer: Family offices now work to ensure existing wealth is transferred from one generation to the next, following each family’s wishes. If one generation prioritizes, say, sustainability, the family office treats that as a priority across succeeding generations by developing strategies for education, governance, and succession planning.
Risk Management: Successful firms are those that manage and mitigate risks through economic downturns, geopolitical friction, and market volatility. The most successful family offices are those that construct and deploy sophisticated risk management frameworks and diversified investment strategies that can help secure wealth throughout market volatility.
Changing Investment Trends: In recent years, there has been a growing emphasis on investments that align with environmental, social, and governance (ESG) criteria. Additionally, with increasing life expectancies, investment opportunities in healthcare and biotechnology have expanded. So have opportunities in the tech sector. Effective family office practices keep pace with new opportunities such as these while keeping their clients aware and positioned to capitalize on them.
Betting Beyond Table Stakes
At this point, managing wealth transference and risk while keeping an eye on evolving opportunities are table stakes for family offices. For those practices that want to continue serving current clients while onboarding new ones, they should consider extending their focus to include additional areas of specialization.
Below are some additional areas of focus for family offices to consider:
Increase Focus on Impact Investing: As previously mentioned, there has been a shift towards investments that not only generate financial rewards but also promise to potentially contribute to social and environmental good. Those family offices that integrate impact and ESG criteria into their investment strategies could benefit by attracting a new generation of investors.
Diversification into Alternative Assets: Many family offices are moving beyond traditional asset classes to include alternative assets like private equity, venture capital, real estate, and cryptocurrencies. Although most of these come with higher-than-average risks, making them part of an overall investment strategy, may help mitigate risk and enhance returns.
Emphasis on Direct Investments: Rather than relying solely on funds, there are family offices that now directly invest in startups, real estate, and other ventures. In many cases, doing so gives investors more control over their assets as well as the potential for higher returns.
Incorporate Cutting-Edge Technology: It’s becoming common for family offices to leverage technology such as AI, advanced analytics, and more for better investment decision-making, risk management, and operational efficiency. Doing so may help improve efficiencies while giving firms a potential market differentiator.
Enhance Focus on Governance & Professionalization: As family offices grow in complexity, their leadership teams may want to adopt more formal governance structures and professional management policies. This includes hiring experienced executives and establishing clear policies and procedures. As family offices grow, those adhering to strict compliance standards may benefit.
Philanthropy & Legacy Planning: Just as some high-net-worth investors are embracing ESG investing, many are also increasingly concerned about philanthropy and the legacies they leave behind. Family offices that promote supporting such efforts may stand out from the pack.
By considering offering a broader menu of services, family offices can evolve from traditional wealth management firms to more proactive, strategic businesses that support the values and long-term goals of their clients.
If you are an accredited investor or represent a family office interested in uncovering alternative investment opportunities in technology, ESG, or other emerging sectors, contact Avestix today.
