Legacy, succession and family wealth education were identified as the areas which have “the most needs or gaps” by the surveyed family offices.

The top concern of Greystone & Co clients is whether “the family’s rising generation is ready for what’s being asked of them,” said David Wells, president of the Pittsburgh-based firm. A “key priority” for Eton Advisors this year is “enhancing our engagement with our rising-generation clients strengthening their financial knowledge and confidence,” said Brian Hughes, president of the North Carolina-based firm. 

Families owning businesses cited “internal conflict” as a principal risk to family stability, and an astonishing 86 per cent of family offices surveyed by JP Morgan said they lacked a clear succession plan for key decision-makers.

Private equity questioned
Regarding investments, global family offices that view inflation as a primary risk are allocating nearly 60 per cent of their portfolios to alternatives, focusing on hedge funds and real estate, the survey found. 

But families are expressing concern about private equity funds, long an alternatives stalwart, and currently comprising nearly 10 per cent of global family office portfolios. A slowdown in distributions and extending lock-up periods without liquidity are causing clients to question the asset category, according to Greycourt’s Wells. “The uncertainty around cash flow impacts the rest of the portfolio,” he noted.

Pathstone clients have been more concerned about the fact that PE funds have “massively underperformed” over the past three years, with returns in the five per cent to six per cent range, said Matthew Fleissig, CEO of the $100 billion-plus family office powerhouse.

Pathstone remains a booster of private equity, Fleissig said, noting that historic five-year and 10-year returns have exceeded the S&P 500. Nonetheless, the category’s recent underperformance has caused clients to raise questions about PE as a reliable asset class, he said.

“Risk-on attitude”
As for other alternative investments, family offices are largely avoiding gold and cryptocurrencies, according to the report. Two-thirds of family offices say they intend to prioritize artificial intelligence investments, but over half have no exposure to growth equity, venture capital or infrastructure.

Those areas are “where much of the innovation happens,” said Natacha Minniti, global co-head of JP Morgan’s  family office practice. “What stands out globally is a clear risk-on attitude.”

Family office investors should focus on “private market exposure” and “the enablers driving the supply chain, from semiconductors and power infrastructure to networking and cooling systems,” said Christopher Aba, head of investment and advice at JP Morgan Private Bank.

Talent woes and rising operating costs
On the business side of family offices, the shortage of experienced talent continues to accelerate.

Greycourt’s Wells points to the demographics of family offices and their employees. As Baby Boomers retire, there are fewer succeeding Gen Xers with the necessary expertise and Millennials are only now entering the prime of their careers. “There’s a lot of demand and not a lot of supply,” Wells said.

Indeed, “competition for talent and the need for specialized skills are driving up operating costs and prompting a shift toward hiring non-family professionals,” according to the JP Morgan report.

The average annual operating cost for a family office is $3 million, rising to $6.6 million for offices with more than $1 billion in assets. Approximately 11 per cent of offices surveyed spent more than $7 million, with over a quarter of those costs allocated to outsourcing services such as legal, trading and cybersecurity.

$10 billion AuM in four years
Developments such as renewed interest by state governments in wealth taxes and increased client mobility are also gaining family offices' attention. Overall, however, family offices appear to be optimistic about the future.

This month Callan Family Office hit $10 billion in assets under management after just four years in business. “We see an incredible opportunity in the family office space,” said CEO and co-founder Jack Ginter, the former president at Well Fargo’s Abbot Downing UHNW private banking unit. “We’re working with multiple generations for a very long-term view, being more intentional about preparing next generation clients and investing to attract the best talent,” Ginter said.

Pathstone’s Fleissig is similarly upbeat. Demand for outsourcing services has skyrocketed, especially for trust, tax and accounting work, he said. As a result, Pathstone plans to hire over 40 new employees this year. “We see a very bright future,” Fleissig said.