Inflation Fears Grab Family Offices' Attention – Study

Tom Burroughes

22 June 2023

Financial performance is right back at the top of family offices’ priorities, with a period of inflation and rising rates concentrating minds, according to a study from Northern Trust and the Wharton Global Family Alliance.

When asked about their greatest concerns, family office respondents cited inflation , the possibility of recession and geopolitical risk as top of mind, the study showed.

The survey – the sixth in a series from the organizations – covered 24 countries. Most survey respondents have more than $1 billion in assets under management and represent families who own, manage and/or control at least one business in addition to the wealth managed by their family offices.

In other findings, the study examines the well-trodden ground of direct investment and ESG investing.

Family offices have substantially increased direct private investments at the expense of making investments through private-equity firms, the study said. However, at the same time, family offices have not staffed up with private equity professionals to evaluate, structure, monitor and add value to such direct investments, it said.

“Private investments are attractive for many family offices because of the potential for high returns, but it is imperative that they deploy the right resources to evaluate and manage these investments,” Professor Raphael Amit, founder and chairman of the Wharton Global Family Alliance and the author of the Wharton 2022 Family Office report, said.

In addition, many family offices report that they are or plan to deploy capital to ESG investments. Even so, a significant number of survey respondents report that ESG investments amount to less than 10 per cent of their portfolios.

“Hesitancy to act may be attributed to challenges in finding consensus among the family on investment themes. It can be hard to find agreement on what is ‘most’ important, as many families remain uncomfortable about potentially sacrificing returns, while others grapple with the best way to measure performance,” the report said.

Succession
In one striking result, the study showed that one-third of respondents have a formal succession plan in place for either the family office or the family itself. Further, when there is a succession plan in place, only 37 per cent of stakeholders know the plan exists.

“The risks inherent in avoiding these conversations and failing to prepare are immense. A well-planned succession process takes at least a year; the time to start is now,” David W Fox, president of Northern Trust Global Family and Private Investment Office Services, said.

Among the respondents, 51 per cent have more than $1 billion of assets under management; 27 per cent have between $500 million to $1 billion; 19 per cent have AuM between $100 million and $500 million; and 3 per cent have less than $100 million. Some 34 per cent of the family offices in the sample serve one to three households, about 23 per cent serve four to six households, and about 43 per cent of the family offices in the sample serve more than seven households.

Wharton GFA is part of the Wharton School of the University of Pennsylvania.

As noted recently, family offices around the world are an increasingly closely tracked sector. In fact, the market has become so busy that there's almost a dozen reports from banks, consultancies and various other bodies about what family offices invest in, what they pay their staff, where they are, and their fears and grumbles.