Despite predictions of a global recession, markets proved surprisingly resilient in 2023. Long-term investment portfolios have performed reasonably well over the past few years, recalling the adage markets ‘climb a wall of worry’. But this doesn’t mean wealthy families can afford to take their investment management for granted. We have seen huge upheaval in recent years: we have lived through a global pandemic and are in the midst of the most significant geopolitical realignment in decades.
Family offices are already responding to changes
From our conversations with families, we are seeing several responses to these shifts. The first is that sales of family-owned businesses have significantly increased as industries consolidate, and private equity firms and companies become more acquisitive. This has created significant liquid wealth. If families continue managing their assets collectively (and not all do) this transition must be carefully managed.
[See also: Financial advisers are failing the rising generation of HNW philanthropists]
Secondly, many of today’s families are likely to take a stance on environmental and social issues. This allows them to reflect their values in investment portfolios, but it can have much broader scope. A deeper understanding of environmental and social impact allows for a more strategic approach to philanthropy. It can influence the management of land, property, and operating businesses. Environmental and social considerations may also help protect a family’s legacy and make the stewardship of family assets more attractive to the next generation.
Lastly, political, and geopolitical developments are prompting international families to review how and where they hold their assets. This is more urgent where there is a risk from war, instability, or economic conflict. But it may be a considered response to the increasing complexity of dealing with tax and reporting requirements across multiple jurisdictions.
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The prospect of rate cuts bolsters markets
As we look at what 2024 has in store, there are other trends that family wealth is unlikely to be sheltered from. The MSCI Index has risen by 16 per cent since late October. This was driven by a change in market expectations around interest rates, as recent data shows that inflation is falling faster than expected. The Federal Reserve (Fed) boosted markets further by signalling that it expects to cut interest rates in 2024, with other central banks expected to follow suit.
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As investors, it is important to look at why the Fed needs to cut rates. Is it simply because inflation is falling? Or is it because unemployment is rising and there are cracks in the economy?
If the cuts come about because growth is falling faster than inflation, then that is problematic. That would create headwinds for equities and ‘risk assets’. However, for the time being there are good reasons to celebrate the falling cost of capital.
How a year of elections will impact family wealth
For the first time since 1992, the US and UK will be holding elections in the same year (assuming the UK government doesn’t hold out for an election in January 2025). India is also set to go to the polls. These will be the first elections held in the age of artificial intelligence (AI). In the UK we have seen more political stability, with only one prime minister over the last 12 months, despite wide-ranging economic and political challenges. The UK election probably won’t alter the trajectory of global financial markets, but it could have large implications for personal tax and sterling.
[See also: UHNWs brace for tax reform in election year]
Meanwhile, investors will be very focused on what the outcome of the US election will mean for America’s debt trajectory. The outcome will also have a significant impact on geopolitics, from America’s relations with China to war in Ukraine and Israel.
In times of change, it’s important that you get the support you need. We work with families to help manage their wealth to create the future they want. Our specialist teams always invest heavily in getting to know each family’s unique make up, circumstances and objectives.
Clare Anderson is UK Head of Schroders Family Office Service. Read her full profile on Spear’s 500.
Schroders won Family Office Services Provider of the Year at the Spear’s Awards 2023.
