Expansion, succession planning and a focus on private equity are among the 10 biggest trends shaping the family office landscape, according to a new report.
The inaugural Deloitte Private’s Family Office Insights Series – Global Edition surveyed 354 single family offices around the world to determine the forces and concerns at the forefront of the minds of family office executives.
The offices oversee an average assets under management (AUM) of $2 billion, while the families they represent have an average wealth of $3.8 billion. Collectively, this totals an estimated US$708 billion in AUM and US$1.3 trillion in family wealth.
Dr. Rebecca Gooch, head of Deloitte Private Insights, Deloitte Global, said: ‘The inaugural edition of Deloitte Private’s Family Office Insight Series serves as a bellwether for leaders in this sector and reveals an overarching sense of optimism among family offices.
‘Despite economic uncertainty and concerns over succession planning, a majority of family offices expect families’ total wealth to increase this year, as family offices remain focused on risk management and evolving their businesses through targeted hiring and outsourcing to scale-up their operations.
‘The report also reveals key shifts in investment strategies, from an increasing preference for private equity over public equity to regional differences in approaches toward sustainable investing. These insights enable family offices to better understand how their peers are operating, better enabling them to navigate the playing field and plan for long-term success.’
The 10 forces affecting the family office industry
1. Growth in the face of uncertainty
Despite market risks like lingering inflation, recession fears and geopolitical tensions, family offices remain optimistic about their future and see growth on the horizon. Seven in 10 family offices expect to see their AUM rise in 2024, while 74 per cent expect the family’s total wealth will increase. As such, family offices ‘aim to hold onto their long-term, yet nimble approach to investing’, the report notes.
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2. Focus on risk management
With the above factors in mind, it is perhaps of no surprise that investment risk is identified as the greatest perceived risk to offices this year. Investment risk management is the biggest strategic priority, ahead of succession planning and investing in governance and valuation policies. Family offices are planning to tackle the issue by seeking new investment opportunities (61 per cent), diversifying portfolios (53 per cent) and employing inflation mitigation tactics (33 per cent).
3. Private equity comes out on top
Private equity has surpassed public equity as the number one asset class for family office investment. In 2023, private equity accounted for 30 per cent of the average family office portfolio, while public equities accounted for 25 per cent. This marks a notable shift from 2021 when private and public equities accounted for 22 per cent and 34 per cent, respectively. This trend looks set to continue: family offices aim to increase private equity investments more than any other asset classes in 2024.
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4. A global sustainability divide
Almost half of respondents (46 per cent) currently engage in sustainable investing, up from 42 per cent in 2021. Europe leads the way, with 57 per cent of family offices currently engaged, up from 45 per cent in 2021. However, there has been an 8-point fall in popularity in North America to 26 per cent over the same period. Despite this, an upward trend is predicted, with sustainable investment’s portfolio share expected to increase by 71 per cent globally in the next five years.
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5. Family offices are hiring
With growth on the horizon, offices are expanding to keep up. Some 40 per cent of respondents say they are looking to hire additional staff this year. Roughly one in three report a shift towards more professional talent (non-family members), with financial services proving the most popular sector for sourcing talent (64 per cent), followed by accounting firms (44 per cent) and consulting firms (25 per cent). The desire to hire is greater for offices with AUM over $1 billion, who need larger and more specialised teams to support the portfolios and wider interests of larger offices.
6. Outsourcing to scale up
Despite an average of $2 billion in AUM, the average family office employs just 15 members of staff. To help fill the gaps, roughly a third (34 per cent) of respondents say they will rely more on outsourcing this year to scale up and gain added expertise.
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7. Tackling cyberthreats
Cyberthreats are a serious risk for family offices, with 43 per cent of respondents reporting that they have experienced a cyberattack in the last 12-24 months. A quarter have been targeted three times or more. Despite the obvious threat, almost one in three (31 per cent) of offices do not have a cybersecurity strategy in place. Meanwhile, 43 per cent say they have a strategy but it could be better.
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8. Charting a path to succession
The great wealth transfer is on the horizon: four in 10 families will undergo generational succession in the next decade. Yet 41 per cent of families currently do not have a family leadership succession plan in place, and half of offices do not have succession plans for their executive leadership teams. Unsurprisingly, ‘succession planning’ has become a top priority for 2024.
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9. Training the next generation
On a related note, executives lack confidence in the preparedness of the next generation to step up and take over. Despite sitting on 46 per cent of family office boards and accounting for 26 per cent of family office CEOs, this younger generation is seen as unqualified to take over (28 per cent) or lacking interest in the family office (24 per cent). However, the next generation is aware of this too: 22 per cent identified succession planning as a priority for this year.
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10. Investing in technology
The majority of family offices (72 per cent) report that their investment in the technology needed to run a modern business is either insufficient and non-existent. But they are taking action. Family office executives are ‘jumping on the tech train’ and investing in an improved approach to technology. Some 43 per cent of respondents said they are either rolling out a technology strategy, or are in the process of developing one. Unsurprisingly, data shows larger family offices with more than $1 billion in AUM are more advanced in embracing technology than their smaller peers.
