Family Office Trends 2022

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

All 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 since the start of the pandemic. 

However, there are always threats, as COVID-19 and global conflict 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. Inflation Concerns for Family Offices

Inflation is at 40-year highs in the US, UK, and Canada. Elsewhere around the world, particularly in developing countries, rising prices threaten to undo stability and decades of economic progress.

As for family offices, inflation is a notable concern, according to a Citi Private Bank survey.  

And all the ingredients for inflation are here:

  • Trillions of new dollars have been in circulation since the start of COVID-19.
  • Recovering demand for goods and services has outstripped the supply.
  • The labor market is tight.  
  • A Putin-led Russian invasion of Ukraine has further disrupted supply chains, driving up energy and food prices.

Family offices view rising (and managed) inflation as a positive economic indicator, but when inflation is “too high,” it threatens to erode asset values. The next question is where family offices invest.

2. Investment Strategies to Deal With Inflation

This is a good time to reconsider strategic asset allocations (SAA’s). In this inflationary environment, holding cash and fixed income will not preserve or generate the returns a family office expects.

A diversified portfolio with a mix of real assets such as equities, gold, and real estate are a good long-term hedge against inflation, according to William Sels, the Global Chief Investment Officer of Private Banking and Wealth Management at HSBC.

He also suggests that outside of their core portfolio, family offices can align returns with specific drivers of inflation. As an example, they can look at investing in automation development or quality companies with strong margin power.

On the climate change front, Mr. Sels says they can look at strategies related to carbon pricing, climate adaptation solutions, or natural capital that addresses climate change risks.

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

Family offices on average allocate approximately 45% of their portfolios to alternative asset classes.

And according to a UBS report, over 80% of family offices invest in private equity.  

Of those family offices, every year an increasing number of them are making direct investments.  

The reason for the increase is simple. According to another UBS survey, 74% of families likely to increase their private equity allocations believe these investments will continue to outperform public equities.

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

Similarly, many entities raising capital view family offices as good partners for the following reasons:

  • Long-term investment horizons
  • Flexibility with investment approaches
  • Straightforward and expedited decision-making

Automation for Private Equity Processing

Download Our Automation Guide for RIAs

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.

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?

4. Hybrid Work the New Normal

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

People once again are returning to the office, but not in the way it was pre-pandemic.

According to a poll from consulting firm Agreus, 64% of family offices have adopted a hybrid working model, while 14% offer full-time remote working, and 22% have resumed full-time work in the office. 78% work from home at least once a week.

In this “Great Resignation” era, offering a flexible work schedule is no longer just a way to stand out from other firms, but to merely meet industry norms.

That said, the in-person and interpersonal communication is still an important part of the trust and relationship-building needed to run a family office. So, at a minimum, periodic in-person meetings will get the job done.

5. Growing Interest in Cryptocurrency with a Healthy Dose of Skepticism

1 in 5 family offices are invested in a cryptocurrency, according to Agreus.

Their ownership accounts for 4% of all crypto investments, and 77% of family offices have expressed interest in digital assets.

That said, cryptocurrency is highly volatile, and Bitcoin for example has seen its value plunge by more than half since November 2021.

While many family offices are willing to invest in different asset classes and take on risk, taking on too much risk is unwise, especially when wealth preservation is a major part of what family offices do.

As a result, most family offices will allocate just a small percentages of their assets into crypto.

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. Cybersecurity Concerns

According to Northern Trust’s Family Office Benchmarking Survey, cybersecurity is the number one concern for global family offices.

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. FO 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: Making Outsourcing Work

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 Single- and Multi-Family Offices

Inflation is a hot topic, and rising prices are influencing many of the family office trends in 2022 and heading in to next year.

Changes to investment strategies, increased social consciousness, and leveraging technology, automation, and outsourcing are just some of the development as a result of the current environment.

Also, 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.

There are some current challenges, but the future is bright.

And by being socially contributors, family offices can make things brighter for the world.

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