Family Office Trends 2022

The family office trends for 2022 will be dominated in large part by global conflict and rising prices, just as the world tries to find a new normal as the pandemic carries on.

All of these things influence how family offices think, invest, and operate.

Establishing a family office is a great way to ensure family wealth is properly managed and eventually distributed to successive generations. There are opportunities not only to preserve assets, but also to grow their wealth, as some of the ultra-wealthy have done during the viral outbreak. 

However, there are always threats, as COVID-19 has shown. Positioning and preparing your organization accordingly will mitigate the risk and ensure a smooth operation. 

Family Office Trends for 2022: 12 Things to Know

1. Return to Normalcy

The COVID-19 pandemic is not over, but vaccines have helped return a degree of normalcy back into people’s lives.

With some restrictions, people once again are returning to the office, traveling, going out to eat, and enjoying public entertainment. This is good news for the economy and capital markets, and family offices are taking note.

That said, future mutations could derail whatever progress has been made. While the situation is improving overall, the last two years tell us there are no guarantees.

2. Family Offices' Cautiously Optimistic Investment Outlook for 2022

Despite the headwinds and uncertainties, most family offices are optimistic.

According to a Citi Private Bank survey, ¾ of family office respondents seek over 5% returns for 2022.

Family office respondents with over $500 million AUM have rosier outlooks, with 30% of them seeking 10% returns.

Ida Liu, Global Head of Private Banking at Citi, nicely summed up family offices’ investment outlook:

"It's reassuring to note that investor sentiment isn't negative. Instead, family offices have weathered the COVID crisis well and are uniquely positioned to deploy further capital as they see opportunities arise."

3. Inflation Concerns for Family Offices

Inflation is a notable concern for family offices, as the same Citi Private Bank survey shows.

And all the ingredients for inflation are here:

  • Goods and services outstrip the supply.
  • The labor market is tight.
  • Trillions of new dollars are in circulation.

But really, is this a surprise?

First, supply chains have been severely disrupted since the start of the pandemic, leading to the undersupplies we currently see.

Second, a rapid economic rebound means more demand for goods and services, but there’s not enough supply and labor to go around. As a result, prices and wages go up.

What’s more, many people have reconsidered their job options and priorities in life because of the pandemic. This leads to even more staffing shortages and price increases.

If that's not enough, the conflict in Ukraine is sending energy prices even higher.

Family offices look at positive economic indicators like rising inflation, but when inflation rates get “too high,” it threatens to erode asset values. Then it’s a problem. The next question is where family offices invest.

4. Growing Interest in Cryptocurrency

According to a Goldman Sachs survey, 15% of family offices globally and 25% in the Americas have already invested in cryptocurrencies. In addition, 45% globally are considering adding cryptocurrencies to their exposure in the future.

Based on the survey, Goldman Sachs noted the following:

"Some family offices are considering cryptocurrencies as a way to position for higher inflation, prolonged low rates, and other macroeconomic developments following a year of unprecedented global and fiscal stimulus."

Diogo Mónica, co-founder and president of the crypto bank Anchorage Digital, is not surprised by the growing interest:

"A lot of the returns over the past couple of years have really been from the new types of cryptocurrencies that have grown faster than Bitcoin on a percentage increase basis."

Crypto Gets a Boost

Cryptocurrency is no longer on the fringes of the investment world.

While cryptocurrency investing continues its ascent into the mainstream, it recently got one of its biggest "endorsements": The White House.

US President Joe Biden signed an executive order, calling on federal agencies to implement a strategy for policies and regulations on digital assets, including crypto.

Investing experts interpret the move as "extremely positive," "long overdue," and an "acknowledgement that crypto is here to stay."

5. The Rise in Family Office Private Equity and Direct Investing

Family offices on average allocate approximately 35% of their portfolios to alternative asset classes. Within the alternatives, 10%-25% account for private equity.

According to UBS, over 80% of family offices invest in private equity. Of those family offices, an increasing number of them are making direct investments. 69% of family offices view private equity as a key driver of returns.

Here are a few reasons why family offices like direct investing:

  • Greater control
  • The appeal to entrepreneurial families for a more hands-on approach to their investments.
  • Reduced fees

Automation for Private Equity Processing

As family offices increase their allocations to private equities, they have more statements to process every month.

It’s a very manual process with repetitive steps for these alternative investment statements: downloading, renaming, formatting, storing, extracting data, and sending report notifications.

Sometimes these statements come in all at once, and it’s overwhelming to deal with, especially when there are tight deadlines.

Download our free Automation Guide for RIAs

We at Empaxis have automated development automation tools to streamline these processes for family offices.

Our clients benefit tremendously from the time and resources we save them. Interested in learning about automating your private equity statement processing?

6. ESG Investing and Taking a Stance on Climate Change

Family offices recognize they have a role to play when it comes to tackling environmental issues; relying on government action is not enough.

While family offices are wary of investment “greenwashing”, they recognize their resources can make a difference when they find the invest wisely.

According to Campden Wealth:

  • 86% of high net worth individuals, family offices and foundations believe their private capital will be “essential” in addressing climate change
  • 79% agree that governments’ pandemic stimulus packages should prioritize green investment and the transition to a low carbon economy
  • 70% see the transition to a global net zero emissions economy as “the greatest commercial opportunity of our age”
  • Wealth holders already active in sustainable investing expect it will constitute, on average, 47% of their portfolios in 2022 and 54% by 2027

7. More Family Office Regulations?

Compared to Registered Investment Advisors, family offices are subject to light regulatory oversight.

That’s because these entities manage personal wealth, not external investors’ wealth.

However, U.S. lawmakers have considered legislation around how family offices operate. With heightened awareness around wealth and wage gaps, large amounts of unregulated capital present many questions:

  • How are these assets and investments being taxed?
  • How much risk is involved? And if things head south, to what degree do these investments threaten the economy and the financial system?

Of course, there are two sides to every story. Family office consultant and Forbes contributor, Francois Botha, provides a great analysis on the topic of family office regulation, evaluating what more or less regulation means for the industry.

8. Managing the Relationship with Tech

Family offices certainly benefit from the advances in technology, whether it’s through using the technology or investing in it.

When lockdowns forced many to work from home, cloud-based platforms and video conferencing applications made it possible to work remotely while minimizing negative impacts.

And family offices have used our cloud-based turnkey asset management platform, TAMP1, to manage all their data and reports in one place.

Furthermore, they’ve invested in the tech sector, via public equities, venture capital, and/or private equity. Of course, they’ve seen fantastic returns.

That said, tech isn’t perfect. Users have data privacy concerns, as well as questions around social media platforms and the connection with increased mental health issues and the spread of misinformation.

Should government regulate them more or not? What alternatives do consumers have?

Socially conscious family office investors should look to get the best of both worlds: enjoy returns while investing in companies that promote their values.

Collectively, family offices can be a force for good. As investors with large clout, they can demand more from big tech and social media.

9. Family Office Cybersecurity Concerns

According to Northern Trust’s Family Office Benchmarking Survey, cybersecurity is the number one concern for global family offices in. Cybersecurity comes ahead of other worries like market volatility, geopolitical uncertainty, and succession planning.

Their concerns are not unfounded.

Of the 78 global family offices surveyed, 96% of respondents said they have experienced at least one cybersecurity attack.

According to a 2017 Campden research survey, 32% of family offices have suffered losses in cyberattacks. In one case, a family office lost $10 million. 48% of respondents surveyed did not have a cybersecurity plan in place.

Family offices are generally less regulated than traditional wealth and asset managers, and in these situations it’s not uncommon for FOs to have fewer formalized procedures around data security and controls.

These findings further support the very reasons cybercriminals pursue family offices. They go after entities with large sums of money that are perceived to have weak cybersecurity.

Prove the criminals wrong. Check out Deloitte’s key recommendations for family offices to protect themselves.

10. Family Office Succession Planning

Setting up succession plans for family offices in emerging markets, particularly for Gulf Cooperation Council (GCC), is a concern. According to an Invesco study, “In the GCC, most wealth is first generation so new inheritance structures need to be developed for large families within local legal frameworks.”

Finding appropriate service providers for managing this wealth is often in mature markets in the United States and Western Europe, where legal and financial frameworks are better suited for these families’ situations.

If the local laws are ill-equipped to handle wealth distribution among family members, then the challenge lies within a succession plan itself. Setting up such a plan over the course of 12-24 months is a top priority, and 69% plan for an inter-generational wealth transfer within 15 years, according to Campden.

Regardless of region, transitions don’t always go smoothly:

  • A lack of interest or qualification in running a family office among the younger generations
  • An unwillingness to give up control among the older generations
  • Generational disagreements over investment strategies after the transition
  • Distrust in how the family office will be run

11. Rising Operations Costs

Costs are going up… what else is new?

As rising costs and smaller returns hurt profit margins, outsourcing for family offices is one way to reduce costs and attain operational efficiency. Leveraging the technology and expertise of third-parties can mitigate the risk associated with in-house functions.

Download our white paper

According to Rick Flynn, a managing partner of Flynn Family Office:

"More successful family businesses are today relying on outsourced family office services providers to achieve greater control and cost savings while managing toward defined family wealth objectives."

Empaxis helps family offices reduce costs by taking care of their operational processes.

12. Family Office Technology Upgrades Needed

The private wealth industry has been slow to adopt technological change.  

As Craig Iskowitz founder and CEO of advisory consulting firm Ezra Group, puts it, “If (family offices) choose not to innovate, they risk going the way of Sears or Blockbuster." 

How dependent have family offices been on locally stored computers and servers? When staff is working from home, do they have to remotely connect to office desktop computers and software? 

Remote connection issues and technology troubleshooting will slow down productivity, and the move to secure, cloud-based applications can solve those problems. 

For example, our web-based TAMP1 platform gives family offices a single place to manage data, reports, investment performance, documents, and communication with family members.  

Unlike legacy systems that have a limited number of licenses available for access at a single time, web-based solutions have no such restrictions. 

Data updates in real time are another reason to move to new cloud-based technology. With efficiencies in turnaround time and reporting accuracy, family offices have information they need to make informed decisions  faster than before.

And according to McKinsey when firms become digital leaders in their industry, they have faster revenue growth and higher productivity than less-digitized peers. 

While family offices have once been hesitant to upgrade software due to cost and complexity concerns, the number of cloud-based, Software-as-a-Service (SaaS) solutions are more affordable and easier to implement, according to PwC’s Danielle Valkner Family Office Leader.

Consider Client Technology Demands

As the world goes more mobile and digital, accessing everything from their devices whenever and wherever has become normal. While older generations in the family may not be as quick to demand the latest and greatest in mobile apps and fintech, younger generations will.  

If family offices, single-family offices in particular, do not make these adoptions, they “risk losing the more technically adept third generation to the MFO (multi-family office) down the street that offers a more modern client experience,” according to Craig Iskowitz. 

A platform like TAMP1 can offer that modern client experience by providing a web-based portal for clients, so they too can see data and investment portfolio performance in real time from their devices.

Use of Artificial Intelligence

From a UBS survey, 87% of family office respondents agree that artificial intelligence (AI) will be the biggest disruptive force in global business.

AI, when its capabilities are fully realized, can perform tasks at greater speed and efficiency than humans. While that may sound "scary" to some, the key is to look at how AI can free up human time to focus on higher-value, client-facing activity.

As forward-thinking firms will employ the latest technology to maximize efficiency, family offices that want to stay ahead of the curve will follow suit.

Use of Robotic Process Automation (RPA)

Automating routine, manual tasks is another technology-related opportunity for family offices.

Predictable and repeatable tasks once done by humans can now be done by bots. This allows employees to focus on higher-value activities.

To learn more about Robotic Process Automation, check out one of our posts on how RPA helps money managers.

Danielle Valkner of PwC shared a few more examples of how RPA helps:

"The most widely used examples of RPA include data entry/form population and account reconciliations. When you combine RPA with artificial intelligence (AI) and machine learning you can gain even greater efficiencies. One real example of this which all family offices will recognise is gathering of tax information and populating tax forms."

The Future for Family Offices

The ongoing pandemic, changes in investment strategies, technology usage, and increased social consciousness will influence family office trends in 2022.

While family offices are optimistic for 2022, they know risk is still present.

The rise in direct investing, impact investing, and use of blockchain technology were under way before the pandemic, and there is little reason to suggest they stop now.

The same goes for succession planning issues and rising operational costs. They existed before, and they will still exist. But with proper planning and action, you can mitigate the risks.

Cybersecurity remains a hot topic. While those risks won’t go away, family offices can take steps to mitigate that risk.

Overall, the family office structure will continue to remain a viable and desirable way for wealthy families to grow and preserve wealth and assets for generations to come.

The future is bright, and by being socially contributors, family offices can make things brighter for the world.

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