Amid economic tension, as well as financial market turbulence, family offices excelled in several … [+]
In 2019 the global business environment has been subject to heightened geopolitical and economic tension as well as financial market turbulence, all of which have created a significant degree of uncertainty and instability among businesses and family offices alike.
Despite these challenges, family offices have made notable advancements in several key areas, positioning themselves not just to survive but thrive in the years to come.
Growth and increased sophistication and professionalization
The number of family offices has grown by 38% since 2017. What’s more, is that the UBS/Campden Global Family Office Report indicated that 70% of family offices surveyed reported rising levels of wealth over the past year. Half of family office executives also reported a rise in operating business revenue, 43% an increase in the number of individuals or families their family office serves and 50% an increase in the degree of governance or reporting structures they have in place to further professionalize their operations.
In 2019 we’ve also seen family office executives, particularly those from larger or more complex organizations, increasingly acknowledge the need to secure specialist skills and expertise in various disciplines, including HR and IT. This is a trend that will continue in the coming years as family offices strive to build teams that can deliver on their short and long-term objectives.
The trend towards securing professional expertise is also one that extends outside of family and non-family organizational staffing. As family offices continue to evolve, many are also looking beyond traditional wealth management consultancies. Increasing focus is being placed on those that offer a broader range of professional services and can customize these to their specific requirements as well as provide expert advice when unforeseen issues arise. Thus, agile consultancies that offer access to experts in various fields such as family dynamics, succession planning, impact investing and various other areas of professionalization are increasingly in demand.
These developments and expanding areas of interest indicate far higher degrees of sophistication in the operation and professionalization of family offices than ever before.
Greater purpose definition and the sharpening of strategic focus
Rapid shifts in the global business environment due to technological advancement, market disruption, global instability and political developments are taking place. These have challenged family offices to reexamine their purpose and strategies and align these with initiatives that will enable them to achieve both their short- and long-term objectives.
This is a challenge to which many have risen in 2019. According to the Global Family Office report, 54% of family offices now have mission statements in place. These collective agreements on the family office’s purpose, wealth and key objectives help to provide a basis for family governance structures that form a framework for decision making, leadership and family communication. From this, investment strategies that are in-line with families’ core values can be developed and successfully executed.
The latter has been demonstrated in a notable shift towards direct investment as families take more operational control of their organizations. For many, doing so enables them to fill niches that are not traditionally aligned with venture capital. By focusing on the areas in which they originally made their fortunes, these families can ensure that they are automatically specialized, which often affords a strategic and lucrative advantage in these markets.
Putting succession plans in place
One of the most significant threats to generational wealth preservation often arises within the family itself. After all, family dynamics are complicated at the best of times, not to mention when highly lucrative assets and potentially life-altering decisions are involved. Succession planning is thus an integral part of family office survival. Yet it is a difficult topic to navigate as it spans several complex areas, including business, investments and family relationships, making it both a sensitive issue and difficult thing to get right.
Family conflicts over succession planning or individual investment decisions that impact the greater family have the potential to divide the family and, by extension, their fortune. Thus, these topics need to be broached with the utmost care and succession plans and governance structures implemented successfully to protect the family office from both internal and external threats.
In 2018, the Global Family Office report indicated that 29% of the next generation help management or executive positions within the family office, while 23% sat on the board. According to respondents, 43% of family offices had succession plans in place.
In 2019, 54% of family offices reported having succession plans in place. This is up a considerable 11% and indicates that family offices are taking definite steps towards cementing their legacies and ensuring long-term survival for generations to come.
While the majority of family offices have enjoyed success in these areas in 2019, many challenges admittedly lie ahead. Proactive family offices have already begun to identify the possible threats and opportunities that these may present, positioning themselves for even greater success in 2020.