Global family office growth soars, manages $5.9 trillion

Asia-Pacific and North American business families of wealth have powered the record-breaking growth in the number of family offices by more than one-third in only two years.

The total estimated assets under management of family offices stands at $5.9 trillion, while the wealth of the families behind them totals a vast $9.4 trillion.

Campden Research estimated this week there were 7,300 single family offices worldwide, up a significant 38% from 2017. The largest proportion of those 7,300 family offices were based in North America (42% or 3,100 offices), followed by Europe (32% or 2,300 offices), Asia Pacific (18% or 1,300 offices), and the emerging markets of South America, Africa and the Middle East (8% or 600 offices).

Dr Rebecca Gooch (pictured), director of research, said the remarkable increase was spurred by the attractive professionalisation of the world’s family office hubs and changing attitudes and requirements as wealth transferred between generations.

“In Asia, where we have seen a remarkable 44% increase in the number of family offices over this period, there has been a surge of growth in business which is leading to a rise in the ultra-high net worth [UHNW] population,” Gooch said.

“This is coupled by an increase in the sophistication of family office hubs, like Hong Kong and Singapore, which are successfully attracting wealth holders. For instance, Singapore has successfully established itself as an increasingly prominent family office base, in-part, by offering families favourable financial incentives, and what is often deemed to be fair tax, legal, regulatory and immigration systems, and a stable government.”

Another influence at play in Asia is a major generational transition. While much of the wealth was new, compared to Europe and North America, more second-generation wealth holders were taking control, Gooch said.

“As a by-product, some families are shifting from a growth-oriented investment model, which is often favoured by the first generation of wealth creators, to a preservation-oriented model, which can be better suited to later generations which might not have the same entrepreneurial skillsets as their parents,” she said.

“Whilst family offices are most famously known for investing, a lot of their other activity involves succession planning and next generation prepping. In turn, family offices are ideal vehicles for those looking at how best to preserve their wealth for generations to come.

Growth in the family office space in North America, up by 41% over the past two years, was not far behind Asia Pacific. Gooch said the United States, which was known for innovation and entrepreneurialism, had been experiencing the longest economic expansion in its history.

“This is leading to an increase in UHNW individuals, which is juxtaposed with a growing trend for wealth holders to establish family offices as a means to assume greater control over their investments, including the ability to hire staff to broaden and diversify their portfolios. Family offices are also favoured by some, as they allow wealth holders to reduce costs by cutting out the middle men/women and provide the services in-house.”

With the rise in globalisation, there was also a growing trend for family offices to establish multiple branches, she said. Some 34% of family offices now have more than one branch, with a small portion having as many as five.

“Education can be more easily shared across the globe, therefore in regions where family offices are still rather nascent, they can seek out training and educational courses in, or hire staff from, more mature family office hubs, thereby advancing in sophistication more rapidly. In other words, they don’t need to reinvent the wheel—and this is easing, and thereby speeding up, the establishment of new family offices.”

Gooch said emerging markets had embraced family offices, with a 50% increase in South America, Africa and the Middle East. However, this number needed to be put into context.

“Previously we reported that there were only about 400 formal single family office structures in the emerging markets. Whilst this number has grown significantly from a proportionate perspective, in absolute terms, there are still only about 600 single family offices combined across these geographies.”

Gooch said family offices were being set up for a number of reasons. For many, a family office began as a vehicle to further professionalise a family’s wealth management. However, this often evolved, with family offices becoming central hubs or headquarters which were essential to a multigenerational family’s effective functioning and long-term planning.

Family offices manage a large portion of families’ total wealth, which was often spread across portfolios invested in anything from venture capital deals, to hedge funds, real estate, and commodities. The most common asset class families invest in was equities, followed by private equity and real estate. Those three asset classes accounted for more than two-thirds (67%) of the average family office portfolio.

“From preparing the next generation for succession, to organising philanthropic initiatives, family counselling, concierge services, and trust/estate planning, family offices are as unique and complex as the families themselves. In turn, the benefits of owning one are limited in scope for some, and expansive for others.”

Campden Research believed the trend in family office growth would continue into the 2020s and beyond. The team had seen a rapid increase in the number of family offices since the millennium, particularly since 2010. Just over two-thirds of family offices were established in 2000 or later.

“As entities, they are becoming increasingly sophisticated, and particularly in more mature markets, such as the United States, some have become rather institutionalised and manage vast amounts of wealth, even by family office standards,” Gooch said.

“Family offices are widely known for investing, however, many provide a multitude of additional services, many of which cater to dynastic families’ long-term vision of multigenerational wealth preservation.

“In turn, evidence suggests that the family office space will only continue to grow globally, and to become increasingly sophisticated as the years pass.”