Navigating investments in 2023 proved to be a formidable task, marked by persistent concerns about a looming recession, high inflation, global risks and a myriad of other challenges. Amid market volatility, family offices adopted a defensive stance. Single family offices, recognizing the need for agility, find themselves operating in an environment shaped by rapid economic and geopolitical shifts. In response, these entities are compelled to exhibit adaptability and strategic refinement, skillfully steering through intricate challenges to ensure effective wealth management on the global stage.
Diving into 2024, let’s explore the considerations anticipated to shape the trajectory for single family offices this year.
Strategic Succession: The Long-Term Vision of Single Family Offices
When contemplating the future, one should not overlook the enduring vision of single family offices, particularly the achievement of successful succession in transferring family businesses and assets. An estimated 18,500 individuals, each possessing a net worth of $100 million or more, are poised to transfer a significant portion of their assets to a new generation, marking the advent of what is now termed the ‘Great Generational Wealth Transfer.’ This movement indicates that individuals within single family offices are eager to involve younger members in investment decisions from the outset, and conversely, younger members are more than willing to take on this responsibility.
Unlike the past, where younger and less experienced members might have had limited influence, there are now clear indications of their earlier engagement in family wealth affairs. This shift reflects a growing interest among the younger generation, particularly as their investment and philanthropic interests diverge from those of previous generations. Ethical investment portfolios, in particular, find greater resonance among the younger cohort, underscoring the evolving priorities within wealthy families.
The role of technology in enabling real-time reporting
When thinking of the next generation, digitization will play a big role in family offices. As digital natives, millennials and Gen Z insist on a higher level of technological sophistication, particularly in achieving 'real-time' capabilities across all business interactions. As such, technology may continue to play a big part in office structures. It is in the interest of single family offices to look into providing tools and technology that ensure all transactions and interactions are immediate, straightforward and seamless—all while maintaining an intuitive user experience. With the ascent of the new generation to positions of influence, the reliance on technology for reporting and obtaining real-time insights into the family's complex global connections, coupled with swift access to comprehensive auditable records, will become standard practice.
Emerging as a potential standard practice is the integration of artificial intelligence and machine learning. The utilization of AI and machine learning holds the promise of achieving heightened efficiencies. For example, applying these technologies into practice can streamline data gathering, such as tax information or completing tax forms, a task that would have otherwise necessitated sifting through mountains of materials or investing a significant amount of time and effort.
Embracing Investment Opportunities in Private Markets
Single family offices are increasingly recognizing the imperative to invest in private markets, either through direct engagement or co-investment vehicles. According to a recent survey conducted by Credit Suisse, the findings reveal that, on average, each single family office participated in seven private deals in the past two years. Interestingly, only 13% of surveyed single family offices abstained from investing in private markets altogether.
Should this upward trend persist, single family offices have the potential to significantly impact the private capital markets, fostering a symbiotic relationship between single family offices and private markets that yields mutual benefits. In the realm of private markets, single family offices bring invaluable business experience and niche expertise to the table, enriching the portfolios of companies involved. Simultaneously, this investment serves as a strategic avenue for diversification, offering single family offices a well-rounded approach to enhancing their financial portfolios.
Shining a Spotlight on the Role of Formal Governance in Decision-Making
Although single family offices typically maintain a team of staff members, there is a discernible trend indicating a growing sophistication and the adoption of institutional practices among them. Recent data shows that 40% of the largest single family offices are now making decisions through a formal governance structure. This shift reflects a maturation in the operational approach of single family offices, underscoring a move toward more structured and strategic decision-making processes, parallel with those found in institutional settings. In 2024, we can expect to see this trend continue to increase and may trickle down to smaller single family offices in one way or another.
As we usher in 2024, a dynamic landscape awaits single family offices, poised to witness their ongoing evolution in response to the escalating complexities of global wealth stewardship.
Ilias Georgopoulos is Global Head of Private and Institutional Assets Owners at IQ-EQ.