The European Family Office Report 2024: a good year for investment returns
This year is likely to have been a good year for investment returns with 28% of family offices expecting a return in excess of 10%, and hardly any anticipating a negative outcome. This optimism could have proved misplaced if markets had suffered a material setback during the later part of the year. But despite some volatility over the period of the US election, a drawdown has not materialised, leaving positive expectations intact.
“There has been volatility in financial markets over the past few years,” admits Dominic Samuelson, Chief Executive Officer, Campden Wealth.
“But European stock markets have behaved reasonably well and US markets have performed significantly better, which is important because more than a third of European family office assets are held in North America.,” he continues.
The report is based on a statistical analysis of 101 survey responses from single family offices and private (non-commercial) multi-family offices in Europe. The survey was conducted between March and June 2024. On average, families participating in the survey have total wealth (including operating businesses) of $1.8 billion, and their collective wealth stands at $186 billion. Their family offices have, on average, $1.4 billion of assets under management (AUM), whilst aggregate AUM stand at $136 billion.
Investment themes
“The European Family Office Report 2024” in partnership with Campden Wealth and HSBC Global Private Banking reveals that preferred near-term investment themes are AI, the "Magnificent Seven" technology stocks, defence industries, cybersecurity, and semiconductors.
Investor psychology is heavily influenced by risks and uncertainties surrounding the US economy. The common concern of family offices has been the stickiness of inflation which is preventing the Federal Reserve from cutting interest rates. At the time, family offices saw risks to financial markets coming from political turbulence around the US election from geopolitical issues in the Middle East and Eastern Europe. On the positive side, few saw a global stock market sell-off. Over the medium term, they see risks coming from AI failing to live up to expectations.
Historically, private equity and venture capital have provided the best risk-adjusted returns. These asset classes together with private credit constitute, on average, 24% of family office investment portfolios. Developed market equities are the second largest asset class at 23% and real estate at 15% is third.
Family offices participating in the survey varied very considerably in size, with operating costs ranging from less than $1 million to over $20 million. We examined the financial characteristics of offices of different sizes, finding that for those with less than $500 million of AUM, average costs are equivalent to 105 basis points (bps) of AUM, falling to just 36 bps for family offices with more than $1 billion under management. This difference in scale is reflected in the number of employees, the extent to which services are outsourced (greater for smaller family offices) and compensation (lower for smaller offices, particularly for family members in C-level positions).
New technology challenges
“Family offices must grapple with a variety of operational and strategic risks,” says Samuelson. Technology is radically changing family office operations. Repetitive tasks are being automated, workflows systematised, and processes streamlined.
Wealth aggregation platforms are emerging as the “big thing” in family office technology. Elements of AI are available on certain platforms, but family offices are looking forward to the full implementation and use of this technology which, put simply, will allow anyone, irrespective of programming or coding skills, to access any digital data in easily digestible formats.
Family offices put their investment function at the top of their list of priorities, and consequently, an investment committee is the most common governance structure found in European family offices. However, only around 40% have a family council, but then two-thirds of our survey participants are from first- and second-generation families where relatively small family size may limit the need for formal meetings.
Despite its importance, only 47% of family offices have a succession plan. But irrespective of the absence of succession plans, a large generational wealth transfer is coming. One-third of family offices anticipate the transition happening within the next ten years, driven by the surge in family office formation that took place in the decade after the millennium.
More than 70% of participants expressed satisfaction with the dedication of their family office staff and the ability of the family office to handle complex activities and believed it provided value for money transactions. There is a high level of satisfaction with the investment function, both in terms of financial performance and the range of investment options offered, but relatively low levels with outsourcing and the scope of functions provided. Where family offices appear to be falling short of expectations is around succession planning and the associated issue of next-generation education. As Samuelson says: “It’s never too early to be discussing the future with the family – through such conversations, family members can find their shared values to incorporate into their plans.”