Family offices often keep a low profile and don’t share much about themselves. What they all want to know, however, is what other family offices are doing and what family office trends are emerging. For this reason, many reports are always keenly anticipated and the UBS Global Family Office report, in partnership with Campden Wealth has become one of the definitive sources for benchmark data.
In 2019 Campden Research surveyed the principals and executives of 360 family offices across the globe, with an average of $917 million assets under management to identify the emerging family office trends. Key findings showed that in comparison to last year, average investment returns have dropped, coming in at around 5.4% for the past 12 months. Interest in sustainable investing has risen, with one in three family offices now engaging in such practices. There has also been an upsurge in succession planning driven by generational wealth transfer.
The report reveals several important family offices trends to consider in the coming year. Responses to this year’s survey identified cybersecurity and market disruption with the possibility of an impending financial recession as the most significant threats that family offices face.
Based on the report, 20% of family offices have experienced a cybersecurity attack that they know of. The most common of which include phishing (76%), social engineering (33%) and malware (33%).
With Cybersecurity Ventures estimating that the cost of global cyber-crime could reach an astounding $6 trillion by 2021 and that up to 90% of companies fall victim to cyber-attacks, cybersecurity remains a top priority.
As such, family offices need to ensure that they have continuity plans in place and that these have sufficient safeguards to protect private and confidential information. Furthermore, they need to ask themselves whether their staff adequately trained on how to apply these guidelines in their daily functions.
Market disruption and the impending financial recession
The report reveals a growing degree of caution and in some cases, discomfort, surrounding geopolitical tensions, and the short-term influences these could have on financial markets. Of the family office executive respondents surveyed, more than half believe that a market downturn will occur by 2020.
In response, executives are reexamining some aspects of their investment strategies and considering measures to curb potential losses and capitalize on new opportunities.
For those who have not yet made preparations for the possible financial market disruptions and the impending recession these could bring, it is vital to identify where their most significant areas of risk should the predicted changes unfold. This can assist in the identification of long-term strategies that ensure wealth preservation and growth.
Global family office trends
In addition to identifying threats, the UBS / Campden report also has its finger on the pulse of global family office trends. This year, these continue to focus on impact and sustainable investment, while also embracing globalization and a rise in the remote workforce.
Impact and sustainable investment
Rising levels of socioeconomic inequality and concern regarding climate change are issues garnering global debate and interest. Of the executives surveyed, 65% believe family offices will play an integral role in economic inequality alleviation. It is, however, interesting to note that this was more of a priority for those based in regions other than North America.
We have seen family offices become much more engaged in discussions about sustainable and impact investing over the last 12 months. This is no longer seen as a ‘side project’ or preoccupation of the Next Gen, but a priority for the family as a whole. Many products are now recognised by family offices as fully-fledged investment tools that can generate good returns.
Sara Ferrari, Head of Global Family Office Group, UBS
Currently, just over 50% of the relevant family offices allocate less than 10% of their portfolios to sustainable investment. A third (33%) dedicate between 10%-49% or more, while the average across those surveyed is 19%. However, respondents predict that a third of their average portfolios will be comprised of sustainable investments and one-quarter impact investments within the next five years.
Impact causes garnering the most considerable investments include those that address climate change, improve health and social care, as well as those that retain and develop employees, workplace safety and cybersecurity.
Sustainable investing remains a core family office trend in the foreseeable future due to 85% of all sustainable investments meeting or exceeding investor’s expectations in the past year. When considering these types of investments, family office executives need to ask themselves whether their office has established its purpose within the greater scope of impact and sustainable causes and set clear objectives accordingly.
If this has not been a priority, now is the time to make it one, especially given the potential for returns and the effect that these activities can have on next-generation engagement.
Globalization, the remote workforce and new technology trends
Technology has changed the face of business operation and brought with a rising trend towards globalization. With this has come the rise of a remote workforce.
Everything can be done remotely today. We only go to the office one or two days a week. The world is becoming more virtual and I think that is a trend that a lot of people still do not understand.
Founding partner at a single family office
Tech-savvy family offices who embrace these trends can harness technologies to not only expand their businesses across the globe but also to leverage global talent pools in various areas of operation where local expertise is lacking. This requires a degree of agility which needs to be prioritized within family offices seeking to advance their reach and grow their wealth.
The report also shows that new technologies such as artificial intelligence, machine learning, cryptocurrency, blockchain and even gaming have made their way onto the family office radar and into their budgets.
Unsure about something but don’t have an expert in-house? There’s an advisor for that
The report reveals that understanding newly emerging technologies, along with securing family professional and general advisory services to support family office functions, are becoming increasing areas of focus within the family office.
Respondent feedback indicates that in the greater scheme of things, family offices are spending more on professional services now than ever before. From a professional point of view, spending is allocated across several categories including governance, family counseling, succession planning, support for new family businesses, security and high-value physical asset management. General advisory services expenditure has also risen slightly due to increased spending on financial and estate planning and trust management.
Investment-related services spending has, however, decreased in comparison to that of 2018 in the areas of traditional and alternative investment, FX management and real estate. The only area showing noticeable increases in disbursement has been investment banking functions.
Preparing for the future
It is evident from the report that the key areas discussed in this article are important family office trends that will increasingly be focal points in the coming year. Executives considering these potential threats and family office trends may wish to conduct comprehensive audits to measure how their organizations stack up and ensure there’s alignment between the family and the family office.
In doing this, factors like purpose, objectives, investment strategies, structure, governance, technology, cybersecurity, agility, succession plans and next-generation engagement can all be evaluated, and areas of concern identified.
With vast amounts of information and resources available within the family office space, there has never been a better time to learn from the past, benchmark and plan for the future. This is applicable not only in areas of financial investment but also within those that drive organizational function and performance. Effectively doing so ensures not only wealth preservation but also long-term growth.
This post originally appeared on Forbes.