Family offices around the world: A look at global trends

At the end of 2019, Campden Wealth took a survey of 360 family offices around the globe for its Global Family Office Report, 2019. Eighty percent of participants were from single family offices (SFOS) which were either independent or embedded in the family business, whilst 20% were private or commercial multi-family offices (MFOS). 36% were headquartered in North America, 32% in Europe, 24% in Asia-pacific, and 7.8% in the Emerging Markets of South America, Africa, and the Middle East.

In this article, we have highlighted five global trends for 2020.

( a) Prepared for an Economic Downturn

A notable 56% of family office executives surveyed anticipated a recession by 2020.

In response, several family offices prepared themselves to mitigate loss and / or take advantage of new opportunities.

Of all the participants surveyed (45%) were in the process of re-aligning their investment strategy to mitigate risk while 42% were doing so to capitalise on opportunistic events; 42% were increasing their cash reserves, while 22% were reducing their leverage exposure within their investments.

(b) Increased investment in cyber security strategy

One-fifth (20%) of family office executives have reportedly been hit by a cyberattack in the last year, the most common form of attack being phishing.

The next most common forms of cyber- attacks are malware and social engineering; all three areas that can often be combated through staff education and awareness training. Despite this fact, nearly a third (31%) of family offices had not provided such training.

Family offices are expected to prioritize the implementation of a cyber security strategy to mitigate significant attacks. Concerns such as how quickly and effectively staff, or family members will be examined as this can have significant impact on the outcome of the attack. Family offices are also expected to take precautions and introduce more cyber controls for when staff are working at home or are mobile.

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(c) Sustainable Investing on the Rise

Sustainable investing – an investment approach that involves the consideration of environmental, social, and governance (ESG) factors in the investment process has been on the rise in recent years. Sustainable investments by region At the end of 2019, USD 31 trillion of assets managed globally were being managed under sustainable investment strategies, according to Global Sustainable Investment Alliance, 2019. At the end of 2019, a third (34%) of all family offices globally invested sustainably, with 19% of their average portfolio dedicated to sustainable investment. This number was predicted to rise to 32% within the next five years.

(d) Increase in technological awareness and relevance

A remarkable 87% of all respondents agree that artificial intelligence will be the next biggest disruptive force in global business. Another 56% believe that blockchain technology will fundamentally change the way we invest in the future.

Over the past year, within the family office space, blockchain technology has been used to gauge the impact of philanthropic endeavours and implement innovative administrative protocols, amongst others.

Artificial intelligence and machine learning are major disruptive forces in business which have begun to create waves that may dramatically alter the family office space. According to Global Family Office Report, 2019, “it has the power to revolutionise family offices’ financial planning, investment strategies, risk measures, and legal, regulatory, and clerical duties. For example, Big Data can fuel artificial intelligence to provide in-depth market insights and recommendations for tactics to maximise returns. It can also store, organise, and re-organise mass quantities of data to offer up-to- date customised solutions. It furthermore can impact family offices in terms of reducing costs and overheads, increasing speed, and helping to mitigate risk.”

As family offices grow increasingly comfortable with using these new technologies and as the cost of using the new technologies falls, the family office space may see further financial disintermediation, with the increase of Fintech services.

(e) Increase in the number of families with a succession plan

According to Global Family Office Report, 2019, 54% of families now have their succession plans in place, however, only 32% of these plans are formally written; 12% are informally agreed, written plans, and 10% are verbal and without written documentation.

Given that this development indicates an 11% increase from 2018, more families are expected to have put succession plans in place during 2020. Furthermore, 46% of families surveyed in 2019, cited implementing a succession plan as a governance priority in the next 12-24 months, after establishing communication between family office and family members (66%) and education of family members on family office activities (55%).

Conclusion

In the next article, we will examine what changes occurred in the family office sector in 2020, with the increased pressure of COVID-19 as well as what trends predicted for 2021.