There has been a significant increase in the number of family offices globally over the last ten years and this trend is expected to continue. EY estimates that there are currently 10,000 single-family offices, a ten-fold increase since 2008. Even more impressive is the sheer amount of wealth being managed by these firms. Research conducted by Dominic Samuelson, CEO of Campden Wealth, suggests family offices currently hold assets in excess of $4 trillion. Family offices are now capable of making transactions that were traditionally reserved for big companies or private-equity firms and therefore are becoming a disruptive force in the market-place as the family office services expand. This trend has received growing attention from large investment banks, who have moved to appoint senior bankers to manage family offices. There have even been strategic shifts within the hedge fund industry, The Wall Street Journal reports that since 2011, “three dozen hedge funds have converted into family offices”. In the same article, Ward McNally sums up the family office phenomenon quite neatly by saying that they are “as quiet as you possibly could find”, but “they’re writing extremely large checks.”
Even today the term “family office” is still one that can be used in many different contexts and carries a variety of different meanings. The family office was initially created to look after the wealth of ultra high net worth families. But the modern-day family office does far more than that as family offices services are expanding. Martin Graham, Chairman of Oracle Capital Group, explains how family offices have evolved to be a one-stop shop for “anything from help with immigration, finding a property to live in, getting children into school, setting up charitable foundations, or project finance. And then, critically, we do a lot of wealth structuring: preserving wealth within and between generations by using things like family trusts and foundations. And on top of that, we also do asset management.”
There are two main variants of family offices that have emerged: The single family office and multi-family office. The former is the traditional family office that serves as an advisory and wealth-management firm supporting one ultra high net worth family. The latter serves multiple families, and this format is becoming increasingly popular. Even the original Rockefeller family office now has over 250clients.
How Did Family Offices Come About?
Most agree that the origins of the family office were European, with the concept being developed and formalized in the U.S. by the House of Morgan and the Rockefellers soon after. Wealth management was the most significant driver, and therefore it is not surprising to see the proliferation in family offices over the last few years as the number of billionaires grows, and the time taken to make significant amounts of money decreases. Other drivers include global volatility, new types of investment options and the focus on multi-generational wealth preservation, all requiring specialist advice. “We saw a growing demand for advice and expertise arising from direct investments,” said Michael Maslinski, Partner at Stonehage Fleming. “This was compounded by increasingly complex regulations, a more litigious society and the risks of an unstable global economy.” Commenting on long-term wealth preservation, Maslinski says: “For most families, the biggest risks they face are in the management of succession and intergenerational transfer. The practicalities of handover frequently impact both on the decision-making process and the decisions themselves, particularly where specialist assets are involved.”
What Does The Future Hold?
Moving beyond 2019, both single- and multi-family offices will continue to expand their focus to include much more than just wealth management, legal and governance. Other family office services that will see a lot of attention include working toward real-time consolidated reporting, developing soft factors like defining a clear mission and purpose and negating new risks like the complex universe of cybersecurity.
The rise of the family office is set to continue, along with plenty of changes expected within this sector. “We will see a move towards greater professionalization of the family office,” says Maslinski. “Family offices today must prepare to give advice on an ever-broader range of issues and, as such, need to ensure that they have the appropriate resources to meet this new demand. The objectives and role of the family office will need to be more clear than in the past.” Graham adds: “I’m convinced that a lot of people won’t be in this business in the long term because they don’t follow a client-led approach. The key to success is having very deep, involved relationships and understanding of clients, and being able to provide increasingly sophisticated services in a way, tailored to client needs.”
The combination of continued global uncertainty and new wealth sets the scene for sustained growth of the family office sector. As requirements become more complex and holistic, we can expect to see the family office services offering evolve to include a renewed focus those elements that will help build strong family brands and manage solid reputations.