The family office has become a significantly powerful sector in the world of business, research conducted by Campden Wealth indicates that family offices now control assets in excess of $4 trillion. Despite the significant costs relating to setting up and sustaining a Family Office, EY estimates that there are currently 10,000 single-family offices, a ten-fold increase since 2008. Traditionally, wealth management has been the biggest driver behind the dramatic growth of family offices, and therefore banks have had a crucial role to play in this space. However, the family office is expanding into new areas and becoming more dynamic and independent in response to the need to drive down costs, explore alternative investments, improve governance and reporting, as well as manage inter-generational wealth preservation. Firms that provide practical and innovative tools to support the specific requirements that are emerging in this space can benefit tremendously. It is crucial for banks to keep their fingers on the family office pulse to ensure that they stay abreast of developments and remain relevant.
The following areas should be of specific interest to banks:
Changing Investment Strategies
Investment allocations and investment drivers are changing within the family office sector, and it is clear that the traditional risk-aversion approach that has served banks in the past is being replaced with a more adventurous and progressive investment mindset. One of the most significant shifts that has been observed is the increasing appetite for direct minority-stake investments and more active participation in the strategic management of these investments.
The motivation behind investments is also evolving, with social and environmental impact becoming a serious consideration, especially amongst the next-generation. As an investment driver, impact investing is becoming increasingly popular amongst family offices, with 32% surveyed now reporting involvement in this space.
Banking institutions need to ensure that they have the resources and expertise to support the new investment agenda and philosophy of family offices to remain relevant as wealth managers.