Compared to publicly traded investment houses, family offices have a certain amount of mystique attached to them.
Whereas the governance structures of most public companies demand crystal-clear, transparent reporting, including publicly available details of how much profit has been made and which investments are held, family offices have no duty to reveal such information. Indeed, even the exact number of family office structures in the world remains a mystery, let alone the amount of assets that they control, although Bloomberg anticipates that the number of Ultra High Net Worth (UHNW) families globally is predicted to reach 263,500 by 2025.
Why is this? Although surveys and studies are relatively numerous, family offices often operate under the media radar, often purposely shunning the publicity that high-profile, blue-chip investment firms attract. This means that solid figures can be hard to come by.
However, what is certain is that family office structures, such as that of Parabellum Investments, managed by founder and CEO, Rami Cassis, play a significant part in the development of global economies. They control many of the most powerful companies and investments operating in many regions, including the UK, Middle East, and the USA.
Therefore, let’s consider why family offices are important – and examine some of the reasons why they are set to become more powerful in the years ahead.
An operational structure ideal for the wealthy.
Due to the increased privacy and control they allow; family offices are becoming common among Ultra High Net Worth (UHNW) individuals, largely as a reflection that many investors want a much greater say in what happens with their money.
By setting up a family office, UHNW investors can have their fortunes managed by a trusted group of financial and legal professionals, who can potentially be briefed to follow specific social or environmental goals as investors look to boost their legacy as well as their bottom line.
A family office structure can also facilitate a smooth transition of private wealth between the generations. Passing vast amounts of wealth from one family member to another can create conflicts, but this can be mitigated by having a team to overcome challenges such as tax, legal difficulties, family pressures, etc.
Increased international cooperation.
We have recently seen the launch of various groups and federations which provide important knowledge-sharing and networking opportunities between family offices – perfectly positioning them with the opportunity to become even more firmly established as a global investment force to be reckoned with.
The French Family Office Association (AFFO) and the Associazione Italiana Family Officer (AIFO) launched the International Federation of Family Offices (IFFO) in 2021. This group is cited as an international alliance with the aim of bringing together national family office associations from every country, to contribute to the international development of family office activities.
There are also further groups such as the Family Offices World Federation and the International Family Office Association. Together, such organisations are bearing witness to the “strength in numbers” adage, providing the perfect platforms for family offices to share insights and knowledge.
A continued strong performance.
The performance of family offices continues to be solid.
A study by Campden Wealth found that family offices outperformed their global peers during 2022, with North American family-office investments recording 15% average portfolio returns, compared with 13% in Europe and 10% in Asia-Pacific.
Furthermore, the report states that more than 75% of North American families grew their wealth in 2022, and more than half of family offices grew their assets under management (AUM). Worldwide, 58% of family offices grew their AUM in 2022.
These figures appear to bear out Campden’s claim that family offices ‘are exceptionally well-poised to navigate rocky terrain’. The reason given is because family offices are nimble entities, with cash reserves and ‘patient’ capital, that ‘can swiftly respond to economic changes quicker than many large-scale organizations can, while also being well equipped to capitalize on opportunistic deals thrown up by market volatility’.
Conclusion
This brief analysis of family offices reinforces the view that they are an important investment structure – and a very successful one.
With the future looking very bright for their continued development, expect to see family offices playing an even more active part in private equity investment deals in the future.
