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5 Trends in 2021 That Affect Family Offices

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2020 was, without doubt, one of the strangest and unorthodox years the world has ever seen. There’s no need to go in detail on the global effects of the COVID-19 pandemic right now. We all know how it affected the financial markets, unemployment, and specific industries. Instead, let us turn our focus on what we can expect from 2021. More specifically, in this article we will look at what the trends this year will offer us and how they will affect family offices.

1. Continued Rise of Alternative Investments

With extremely low interest rates forecast to continue at least until 2023, investors around the globe will keep searching for opportunities in the alternative investments market in an attempt to find higher returns. While near-zero and negative interests imposed by central banks in the EU, USA, UK, and Japan may have prevented inconceivable bankruptcies and lay-offs by stimulating easy-to-access crediting, they have reduced bond yields as well. Thus, investment managers will continue to steer away from stock and bonds, putting more of the assets they manage in private equity, real estate, private debt, hedge funds, and so on. Preqin predicts that while specific asset classes will see different rates of change, the overall investments in alternative assets will steadily grow with a CAGR of 9.8% to reach $17.2 trillion in 2025.

How Does That Affect Family Offices?

Historically, family offices have been prominent investors in alternative assets. According to a recent UBS report, family offices entrust 35% of their investments into this class. What’s more, almost half of the respondents to the survey said in May 2020 that they are actively looking to deploy cash with real estate being their top choice.

With their massive experience in alternative investments, family offices are set to become the great winners in the run for getting higher investment returns through private equity, hedge funds, and real estate. By leveraging the expertise they already have and spotting the most attractive opportunities right on, family offices can be expected to outperform their investment management peers.

2.  Transfer of Family Wealth

Current owners of family offices are mainly in their 60s and 70s. Sooner or later succession will take place. In fact, according to a wealth transfer report from the Bank of Canada, more than $4 trillion are expected to change hands within the next decade in North America alone. The biggest beneficiaries will be Millennials who will take over the management of their family wealth and family offices management.

How Does That Affect Family Offices?

Millennials, as a generation, are famous for their environmental consciousness, advocating for sustainable and impact investing, and being tech-savvy and price-oriented. Chances are, they will demand deep involvement in the family wealth’s strategic asset allocation. In fact, more than 55% of family offices report great involvement of the beneficiary in strategic asset allocation as it is today. So, it might be safe to expect that the percentage will probably go over 65 in recent years.

With Millennials taking control over the family’s heritage, family offices will need to adapt to meet their styles and goals. Some of these may involve:

  • Focus on even more ESG investments while keeping ROI under control – family offices will need to gain more experience and expertise with this type of investing
  • Deploy technological solutions to keep up with the next generation’s expectations for ease of access to information and reporting
  • Achieve new levels of cost efficiencies – being price-sensitive and less loyal to traditions, Millennials will not be hesitant to change service providers if better propositions come their way or at least push for better terms

3. Increasing Number of Family Offices

According to latest numbers, the count of family offices around the world grew by 38% since 2017 alone, now standing at 7,300. Most of them are based in North America (42%), followed by Europe (32%) and Asia Pacific (18%). Family offices now manage assets for over $5.9 trillion – more than 60% of the wealth of the families behind them.

There are many driving forces behind the rise of family offices. One of them is business growth in Asia Pacific and the Middle East, which leads to a rise in the number of high net worth individuals in the regions and their respective desire to manage their wealth professionally. Another reason is the increasing awareness of wealthy families of the need to hire experts to help them not only preserve, but also grow their money.

Even though 2020 saw a decrease in the numbers of billionaires and millionaires alike, it is safe to bet that the general trend for seeing more and more family offices spur up around the world will stay.

How Does That Affect Family Offices?

As simple as it is, this trend means that family offices will see an ever increasing competition for wealthy families. Even more so in the multi-family office arena. These professionals will need to get an edge over the competition be it with service offerings, unique expertise, or tech-driven efficiencies.

4. Technology Trends Affecting Family Offices

Artificial Intelligence (AI), Robotics Process Automation (RPA), cybersecurity concerns, apps, blockchain and Distributed Ledger Technology (DLT), etc. – they are all trends that will keep evolving through 2021 and beyond, putting more pressure on family offices to keep an eye and stay on track. Whether it will be through investing in these technologies or actually implementing them in daily operations, family offices need to finally awake and embrace the future. So far, the private wealth industry has been quite slow at it. However, 2021 might turn out to be just the right time for taking the necessary actions.

5. COVID-19

Discussing the trends in front of family offices in 2021 cannot go without looking at the effects of COVID-19. Even though lockdowns and working from home are still shaping our everyday reality, the invention and usage of vaccines will start to slowly change this scenario. With it, the world economy will continue to recover, although it is not clear yet to what exact extent life will go back to normal. Either way, global wealth levels are expected to rise. Expectedly, this might lead to a further push on the number of family offices and competition that we discussed in p.3.

Conclusion

Despite the many challenges in the industry, the family office industry will continue to grow and help wealthy families manage their assets. Their chances for success will increase if they keep in mind the trends that will shape the sector. It will be even better if they act now and make the most of the opportunities these trends will supply.

April Software is happy to assist your family office in digitizing and automating your fund data processes. Contact our FundTech company today to see how our solution can collect and aggregate your figures for seamless dissemination, usage, and reporting.

*Background music for audio version: Bensound