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Family Offices: Exploring Trends, Challenges

Tom Burroughes, Group Editor , London, 17 March 2020

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This news service is producing a series of articles exploring aspects of the family offices sector. We will look at the trends, challenges and problems within the space, and consider what the future holds.

Few parts of the wealth management sector do more to justify the idea that this is a widely fragmented industry where “bespoke” is more than just some cliché. There’s a saying: if you have seen one family office, then you have seen one family office. No two of these entities are the same. This isn’t a cookie-cutter sector. 

None of the foregoing remarks mean, however, that this isn’t a sector going through big change. For one, it appears that single family offices aren’t as below-the-radar as they may have been in the past. US SFOs tend, in this publication’s admittedly anecdotal experience, to be more media-friendly and willing to discuss their activities than is the case in the UK, continental Europe and the Middle East. (The Asian market is still so young that making comparisons is not easy at this stage.) A reason why they are becoming more open is that SFOs, as we reported saying recently, have the “fear of missing out” when it comes to deals from VC funds, private equity, real estate, infrastructure and forms of credit. They want to get ringside seats. That’s hard to do if you are very discreet and avoid any publicity. 

Among trends in the space is the growing professionalisation and use of outside, non-family members as investment chiefs, strategists, chiefs of staff, lawyers, invoice payment handlers and property managers. Family offices are outsourcing services to external CIO businesses, technology companies (dealing with matters as varied as cybersecurity resilience, reporting and cash-flow modelling); “direct investing” and co-investing. Family governance and goal-setting is becoming more sophisticated; more data is gradually being gathered to help family offices benchmark performance and get a clearer idea of whether they get good value for money. A cluster of support services advise families on how to build an SFO, or whether they should do so at all, as well as counsel them in how to frame their goals, keep family members happy and united, and transform, if needs be, to a multi-family office model instead. 

There’s also more data around than there used to be. In Europe, the Middle East and Africa, for example, the Highworth researches the sector and has a large and growing database of what SFOs are investing in. (See here for sign-in details.) This news service is now an exclusive media partner with Highworth. In the US – the most mature and the largest SFO market – organisations such as FINTRX, a data and analytics firm, track the sector. Evidence about trends is not as extensive in Asia at the moment, but that sector has such growth potential – so many businesses are family-owned – that statistics and coverage is bound to grow soon. 

The greater willingness of some SFOs to be more visible needs to be understood in comparison with how multi-family offices are already public organisations, often large in terms of assets and staffing. One trend we track is why SFOs might want to make the switch to a "multi" position and how they do so. 

Media interest waxes and wanes: in the current political environment with a focus on the real or alleged position of “the one per cent”, family offices can find themselves in the firing line. What tends to be overlooked is that the old “shirtsleeves to shirtsleeves in three generations” cycle remains very hard to break; family offices attempt to buck the trend and can only do so by recycling great wealth back into the economy effectively. And that is good news for jobs and growth. Family offices might not be well known by the wider public, but the best-run institutions are important parts of the financial jigsaw, collectively overseeing trillions of dollars and equivalent amounts of wealth. 

Family offices are long-term investors. They have to be: they often have to consider what great-grandchildren will need. But modelling beneficial owners’ investment needs is very complex in this sector. Imagine a family office with, say, 10 family members of different ages and circumstances, ranging from employees or those with a business income to those living purely on investment income. There’s the whole “fairness versus equal” conundrum to work out: how to treat a family member who wants to run an art gallery, one who wants to join the air force and another who wants to run the family’s operating business? Who inherits what assets and in what way? This is difficult and resolving such issues requires tact, patience and understanding. Advising families around all this is a demanding discipline. 

Banks and other service providers know that the family offices sector is an important client base. UBS, Credit Suisse, JP Morgan, Citi Private Bank, Abbot Downing (part of Wells Fargo), Bank of America Merrill Lynch, Boston Private, Key Private Bank (based in Ohio), BNY Mellon’s Pershing, SEI Investments and others provide a range of services. (Readers will note that many of these firms are American, perhaps underscoring how family offices are more established in the US than anywhere else.) Professional services organisation PKF O’Connor Davies, for example, is the kind of body that works closely with a cluster of family offices, assisting them with a lot of the behind-the-scenes financial “plumbing” that families need. Another example is EisnerAmper, which has been building up its services to families. 

This is a busy sector, and its rising prominence and awareness of its role draws in more attention. Not all of it is welcome: cybersecurity is a big headache for SFOs that might have taken a casual approach to security in the past. But it certainly is a fascinating sector, and its sheer variety means there will always be much to discuss. 

To that end, this news service and its sister publications in Asia and North America will take a look at issues in the family offices space across a variety of fronts. Articles will appear in the next few weeks, although our coverage will also continue for the rest of the year. We welcome feedback and readers can contact the editors at tom.burroughes@wealthbriefing.com and jackie.bennion@clearviepublishing.com

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