Family Office
September 13, 2022

Family and family office matters

September 13, 2022
Family Office Group
SUMMARY

The top-three family concerns transcend financial assets and include preserving the value of their assets  (65%), preparing the next generation to be responsible wealth owners (51%) and managing transitions (43%),  indicating a growing awareness of the dual necessity to prepare wealth for families and families for wealth.


Key concerns and transitions

The top-three family concerns transcend financial assets and include preserving the value of their assets  (65%), preparing the next generation to be responsible wealth owners (51%) and managing transitions (43%),  indicating a growing awareness of the dual necessity to prepare wealth for families and families for wealth.

 

 
Key family and family office concerns
 

Leadership successions at the family, family office or trustee levels are among the key transitions that majority of respondents are expecting to face in the next five years, with some facing multiple transitions, raising the critical issue of their level of families’ preparedness to manage such critical inflection points in turbulent times.

 

 
Succession events in the next five years
 

At the Family Office Leadership Program, Professor John Davis of the Cambridge Institute for Family Enterprise emphasized that family enterprises are facing a perfect storm. On one hand, external forces of change include environmental degradation and ecological disruption, technological advances and digital disruption, globalization and deglobalization, and socioeconomic and political influences.

On the other hand, the families themselves are changing as they are becoming better educated, more geographically dispersed, increasingly diverse in many ways, more focused on satisfying individual needs and supporting individual success, spreading out over three or more generations thanks to longer life spans, and being challenged to be more transparent and inclusive about decision making.

In this context, Professor Davis recommends five transformation strategies that can help family enterprises adapt to change and succeed:
  1. Reorient and retool your owners
  2. Get ready to pivot
  3. Accelerate your digital transformation
  4. Make social impact a priority
  5. Engage and revitalize your family.

Over time, family offices focus increasingly on family unity and continuity

The primary focus of family offices today delineates two main types – those centered mainly on investment management (50%) and those primarily focused on family unity and continuity (35%). Interestingly, the prioritization of unity and continuity increases as the wealth transitions from first generation (25%) to second and beyond (43%).

 

 
Primary focus of the family office
 

The professionalization of the investment function continues

75% of family offices have an investment committee or board and, of those, close to half (44%) comprise both independent advisors and family members.

A majority (55%) of family offices have an active investment policy statement, but the percentage varies significantly whether the family is first generation (44%) or second and beyond (63%).

75% of family offices rely on external investment consultants, primarily for manager selection (52%), strategic asset allocation (45%) and investment research (44%).

 
Services received from external investment consultants
 
 
 

Philanthropy

Families continue to use a variety of charitable giving vehicles, with private family foundations and personal giving directly to charities representing the most popular ways to facilitate philanthropy at 54% and 48% respectively. Historically, we have seen an increase in the number of foundations globally, with about 65% concentrated in Europe and 35% in North America.

In the US, the large share of personal giving to charities highlights the potential opportunity for families to explore the benefits of bringing a structured endowment to their philanthropic endeavors. The growth of an endowment of charitable assets gives philanthropists additional resources to support the causes they care about and allows them to align their investment strategy with their philanthropic mission and values, thus creating a ‘double bottom-line impact’.

 
Facilitation of charitable giving
 
 

One of the panel discussions during our recently concluded Family Office Leadership Program covered the topic of trust-based philanthropy. The panelists emphasized how this approach addresses the power balance between donors and non-profits and, with a disciplined approach, can lead to accelerated outcomes.

Trust-based philanthropy also shifts the onus onto funders to get a better understanding of their grantees, instead of having their grantees prove their efficacy. This fundamental shift is resulting in more appropriate funding provisions and is enhancing the potential of non-profit organizations to be more effective in delivering their mission, retaining talent and implementing longer-term strategies. While every family should define a philanthropic strategy that fits their needs, it’s typically helpful to learn from peers to be inspired, identify best practices or common mistakes to avoid.

Finally, the top-three areas of philanthropic focus are education (73%), healthcare and medical research (42%) and youth development (33%), notably ahead of the environment (20%). This is relatively consistent with the highest rated global philanthropic focus areas over the past several years, with education a top priority followed by health. The interest in youth development may reflect a philanthropic response to the disproportionate effect the pandemic has had on young people. As the intergenerational transfer of wealth takes place, younger philanthropists – as they become decision makers globally – will likely shift the giving landscape with an increased interest in supporting environmental causes.

 

 
Areas of family office philanthropic focus
 
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