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.
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%).
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’.
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.