Wealthy families invest in succession and safety in property in era of uncertainty

More family offices are looking to get involved in co-investments with other families and the best advisers in emerging property sectors could be the next generation, says a new report on wealth.

More ultra-high net worth individuals (UHNWIs) and their families were choosing to cut out the middleman when it came to their investment portfolios by setting up a dedicated family office and property was no exception, Knight Frank said in its Wealth Report this week.

Preserving security as well as wealth was becoming an increasing motivator for families in where they chose to invest in real estate.

The property consultancy said family offices co-investing with other private investors or families can help spread risk, create diversification, open up new sectors and provide access to larger deals, while still retaining a level of control.

More than two-thirds (67%) of respondents told Campden Research last year that family office demand for co-investment deals will likely increase over the next 12 months. The Private Equity and Co-Investing for Family Offices report found the most important criteria for choosing a co-investing partner was the potential partner’s track record for value creation (86%), followed by industry-related expertise (84%) and co-investing experience (84%).

Rory Penn and Thomas van Straubenzee, of Knight Frank Private Office, said in The Wealth Report that many emerging property sectors, such as last-mile logistics hubs, were being driven by new trends in technology, consumption and demographic changes.

“The younger generation is often more in tune with the ‘next big thing’, so getting children involved as early as possible in the management of property portfolios is not just part of any sensible succession plan; it could well prove to be commercially astute,” they said.

“We have seen examples of where this has been done well, and not so well. Relinquishing some control and sharing responsibility generally creates the strongest family partnerships.”

Most of the millennials (74%) who participated in Campden Research’s 2017 study Coming of Age: The Investment Behaviours of Ultra-High Net Worth Millennials in North America were trained and knowledgeable about their family wealth and investments. Nearly two-thirds (65%) had a say in decision making for their families’ portfolio however, only 21% were fully satisfied with the aims of those portfolios. The Campden study found one-third of millennials would incorporate environmental, social and governance standards into their benchmarks and another third would delve less into liquid investments such as hedge funds and private equity.

Almost a third (31%) of all global commercial real estate transactions involved private capital The Wealth Report said.

“Growth in non-financial assets—that is, real estate—is one of the leading factors driving UHNWI growth,” Oliver Williams, head of GlobalData WealthInsight, said in the report.

Over the past 15 years, where in the world ultra-wealthy families were investing in property had largely been driven by where their children were to be educated. While education was still a consideration, families were also “becoming increasingly strategic in response to global uncertainty and political upheavals” and were investing in additional homes in cities and countries where they can see greater levels of stability.

“As wealth increases, 2019 will see governments settle into two camps: the first will try to attract more of it; the second will seek to push it away," the report said.

“In the former camp sits Italy, where a new ‘nondom’ regime will kick fully into gear this year, resulting in a growing band of wealthy migrants enjoying la dolce vita in return for a fixed tax payment of €100,000 on their global income.

“Conversely, Singapore, Australia, New Zealand, Canada, the UK and others will make wealthy non-residents jump through ever larger hoops to access their property markets."

The 13th edition ofThe Wealth Report said wealth creation will remain constant in 2019 with the global ultra-wealthy population set to rise by more than a fifth (22%) over the next five years, despite the gloomy geopolitical and economic forecast. A notable 63% of the world’s UHNW population saw an increase in their wealth in 2018.

“Some 42,711 people, roughly equal to the number of runners in the London Marathon, will see their wealth rise to $30 million or more between 2019 and the end of 2023,” the report said.

“This will take the number of UHNWIs worldwide to almost 250,000.”