The accelerating transformation of family offices in Italy

Attention to strategies for the management and continuity of the assets of entrepreneurial families in Italy has grown considerably in recent years, as has the role and scope of family offices.

Family offices are by definition the custodians and controllers of these—often immense—family assets and today represent a truly diverse universe.

This is the preliminary evidence emerging from the new research project The Transformation of the Italian Family Office. The three scholars involved in this ambitious research project—developed in partnership with eminent national and international legal firms and promoted by the main national associations of the sector—discussed with CampdenFB the initial evidence and the trends identified.

“Family offices represent the heart of family capitalism and are rapidly increasing, both in Italy and worldwide,” Alfredo De Massis (pictured above), professor of entrepreneurship and family business and a family business adviser, said.

“While traditionally devoted to the management and protection of family assets—especially monitoring financial investments—their activities today appear to be undergoing a major transformation. The increasing commitment to strategic investments in companies and startups, philanthropic activities and non-financial services creates socio-emotional wealth for the family.”

The initial research evidence highlights how the Covid-19 crisis has not slowed down the rise of family offices, quite the contrary. The research team has identified 180 active family offices in Italy as of May 2021, including single and multi-client family offices, with heterogeneous legal and organisational forms. But what are European and Italian family offices investing in today?

“The pandemic has undoubtedly had an impact on the basic strategic choices made by family offices, accelerating some of the trends we had started to observe some years ago already,” Josip Kotlar (pictured right), associate professor of strategy and family business at the Milan Polytechnic University, said.

“The traditional attention given by entrepreneurial families to the preservation of existing family assets is shifting toward an increasing interest to innovative activities, with a growing activity in private equity and venture capital investments.

“Adding to that, entrepreneurial families today are highly committed to pursuing both financial and non-financial goals, meaning they give greater weight to the environmental, social and governance impacts of their investments.”

What is impressive is the diversification of their investments and the growing sophistication of their investment operations. The research conducted by the three scholars reveals that family offices invest directly in the capital of innovative small and medium-sized enterprises and innovative startups with minority shares. In 2020, there were 111 investments in startups and innovative companies involving at least one European family office, marking a 19.9% increase in terms of value invested compared to the previous year.

The outlook for 2021? De Massis said many investments planned for 2020 have been frozen due to the uncertainty linked to the pandemic, “but this does not mean that operators will stand still.

“We believe in a strong emphasis on sustainable investments, ESG [environmental, social and corporate governance] considerations are currently key aspects of family office strategy.”

But what role do members of entrepreneurial families play in this scenario? Kotlar said the answer changes a lot depending on the type of family office we consider.

“In multi-client family offices, it really depends on the asset class of interest for each family client, but the family has generally a less active role in the investment process. In single family offices, family members almost always have a much more active role, with direct say on investment directions and decisions.

Emanuela Rondi (pictured), research fellow at the Centre for Family Business Management at the Free University of Bolzano and assistant professor at the University of Bergamo, said the scholars were interested to observe single family offices’ holistic approach in aiming to internalise diverse skills and activities.

“The biggest challenge for these organisations is not only represented by cost efficiency, but also by the ability to attract talents,” Rondi said.

“Indeed, a big challenge for family offices is to find people equipped with the right core financial, managerial and legal skills, but even more important with the soft skills needed to deal with the complexity of entrepreneurial families, particularly concerned with trust, secrecy and privacy.”

Thus, family offices are living a strong transformation nowadays, especially in Italy as witnessed by this research project, becoming an important phenomenon for analysing and considering the dynamics of entrepreneurial families’ assets, which are complementary to the strategic management and governance dynamics needed in family businesses.