Is the gradual wealth transfer creating ‘Gen PC’?

The ‘great wealth transfer’ has rightly had many column inches devoted to it, given the sums involved. According to Henley & Partners’ Centi-Millionaire Report 2023, there are now 30,770 individuals with more than US $100 million in assets apiece, with this cohort skewed heavily towards older generations. These centi-millionaires and billionaires are expected to account for about half of the $18.3 trillion Wealth-X expects to pass from one generation to the next by 2030.

While this story of mass inheritance is certainly important, we are dealing with a drip-drip-drip, rather than a tsunami. The rapid expansion in life expectancy and longer working lives – not to mention unprecedented levels of individual wealth – means patriarchs and matriarchs are now staying in control of family office and business affairs well into their sixth and seventh decades.

This means their millennial and Gen Z children (born between 1981-1996 and 1997-2012, respectively) have been slower taking full charge. Yet Citi Private Bank’s Global Family Office Survey Insights 2023 found that preparing the next generation to be responsible wealth owners was a top concern for 60 per cent of family offices, ranked as more important than macro considerations like inflation and US-China tensions. The Next Gen has therefore played an important, if only supporting, role in family governance and investment matters for many years. 

One of the ways this has manifested itself is via the rise in co-investment deals. Survey data shows that family offices plan to allocate more to co-investment opportunities across private credit, growth and venture in the coming years. Furthermore, the Citi Private Bank survey found that family offices relied mostly on internal teams (51 per cent), other families (49 per cent) and networking or investment clubs (36 per cent) for deal flow. This was followed by external advisers and banks at just 24 and 21 per cent, respectively. Involvement in co-investment deals is a good way for the Next Gen to get exposure to the benefits and risks of private markets, while enjoying the support provided by partner investors.

At a broader level, Citi found that net sentiment was particularly positive for global developed investment grade fixed income (+34 per cent), private credit (+30 per cent), cash (+27 per cent) and direct private equity (+23 per cent). But it is also worth noting that some families pared back their direct private equity dealmaking between 2021 and 2023, with the UBS Global Family Office Report finding the average allocation fell from 13 per cent to six per cent. This was partly offset by a rise in private equity (PE) fund/fund of funds investing as family offices looked to position themselves more defensively. However, this should be viewed as a blip rather than a change in direction: 41 per cent still told UBS they planned to increase direct deal allocations over five years.

Millennials and Gen Z scions are probably best known for their interest in ethical and sustainable investment strategies. Numbers from UBS show families are switching to a more ‘intentional’ sustainability approach that goes beyond simply excluding ‘non-ESG’ investments. Families surveyed said their exclusion-based strategies would drop from 37 per cent to 24 per cent in five years, with more intentional impact investing set to rise. Sustainable and impact investing strategies find a natural home in the private markets, where investors tend to have more control, as well as more opportunity to scrutinise and question investees.

Younger people are also more likely to believe that private market alternatives will provide outsize returns. When the Bank of America spoke to those with more than $3 million in investible assets, 75 per cent of Gen Zs and millennials (aged 21 to 42 at time of survey) said it is not possible to achieve above-average returns by relying on traditional stocks and bonds. They therefore had only 25 per cent of their holdings allocated to public stock markets, compared with 55 per cent for those aged 43 and over. In response, platforms like Moonfare and iCapital have entered the market, making private equity deal making – particularly across venture, debt, and buyout – more accessible for smaller family offices.

So, what changes will ‘Gen PC’ herald in when they do take the reins? Their enhanced focus on sustainability, private credit and private markets will increase demand for technology that allows them to monitor their holdings in real-time, given the instant access these digital natives are accustomed to. The demand for better portfolio monitoring technology forms part of a trend towards professionalisation in the family office space, with 40 per cent of the largest single-family offices now making decisions via a formal governance process.

This generational transition is also occurring within an uncertain macroeconomic context, where challenges such as inflation, heightened geopolitical tensions, and a volatile market are mounting. These considerations will inevitably influence how the next generation navigates their burgeoning roles. The agility, technological savvy, and ethical compass of these new wealth holders will be critical in steering their family fortunes through the unpredictability ahead.

Ilias Georgopoulos is the Global Head of Private and Institutional Asset Owners at IQ-EQ.