Family Office

What’s Top Of Mind For Some Of The World’s Leading Family Offices? 

Hannes Hofmann 20 July 2023

What’s Top Of Mind For Some Of The World’s Leading Family Offices? 

With unprecedented rate hikes, sluggish return to office stats and the impending loan maturities, are we looking at a brewing crisis in the commercial real estate sector? 
There is no doubt that the commercial real estate sector is enduring a trio of challenges with rates hikes, high vacancy rates and upcoming maturities. Despite these, there are bright spots within the travel and hospitality sector that has benefited from ”revenge travel” and the industrial sector with the focus on revival of manufacturing capability, especially in the US. Selective opportunities within global luxury real estate, and event multifamily and office space are available for capital deployment if investors were to focus in on quality versus quantity. The ability of large financial Institutions with solid balance sheets to offer optimized debt restructuring options, will be key to crest over the rate challenges in the short term. 

How can family offices effectively balance risk and return in the current environment?
Elevated inflation and recession fears have made for challenging conditions while monetary tightening has created painful losses in bond portfolios. 

Notwithstanding the uncertainty, there are potential opportunities in high quality fixed income, such as in US investment grade fixed income and short-duration index-linked bonds that could be useful against further inflationary surges. A weakening US dollar over the coming years could also increase the returns on EM and other assets.

How is estate planning evolving in the modern family with reproductive advancements, adult adoptions, and longevity?
Advancements in reproductive technology – from in vitro fertilization (IVF) to embryo freezing to surrogate pregnancies – has introduced complexity in determining legal parentage and inheritance rights. Individuals using or considering using these methods should clarify inheritance rights in their estate plans. Similarly frozen genetic material and disposition of these materials should be clear in estate plans regarding their intended use, donation or disposal. While less common, adult adoptions can affect beneficiary designations and guardianship and decision-making authority for healthcare and financial matters.

Finally, increased life expectancy implies that individuals must ensure that their assets are managed and preserved for an extended period, which requires a well-thought-out strategy for establishing trusts, healthcare directives and insurance.

What are the best practices to navigate family and family office leadership succession?
Seasoned family office executives highlighted below the seven vital lessons for navigating the complexity of family and family office leadership succession:  

1. Have the courage to start a conversation about succession; 
2. Develop a succession plan early and make it a continuous process; 
3. Seize the opportunity to redefine the family’s vision for their future; 
4. Communicate, communicate, communicate!
5. Set the new leader up for success; 
6. Support the transitioning leader; and 
7. It is never too early to start planning.

What are the options and key considerations for families seeking capital or even an exit?
Family owned and closely held businesses may seek outside capital for acquisitions and/or other growth initiatives, buying out existing family shareholders or outside shareholders, and deleveraging balance sheets with equity solutions to provide more operational flexibility. Having a robust governance framework, a well-thought-out succession plan and long-term vision and alignment within the stakeholders and family members is critical. Sovereign wealth funds can be a source of long-term, patient capital that is better aligned with the family’s vision of longevity while a partnership with a like-minded private equity firm can be a fruitful and frictionless experience. 

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1, Citi Private Bank, June 2023

Views, opinions and estimates expressed herein may differ from the opinions expressed by other Citi businesses or affiliates. The information contained herein is not intended to be an exhaustive discussion of the concepts mentioned herein or tax or legal advice. Readers interested in the concepts should consult their tax, legal, or other advisors. You can read our full disclaimer here.

About the author
Hannes Hofmann is a Managing Director at Citi Private Bank and Global Head of the Global Family Office Group. Hannes has an extensive global institutional wealth background. He joined Citi from JP Morgan where he spent over 20 years in numerous roles globally.

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