Deloitte Private’s inaugural Family Offices Insights Series - Global Edition reveals optimistic family Offices sector despite economic uncertainty and succession planning concerns

Key takeaways

• Family offices project growth despite challenging economic conditions, recession fears and geopolitical tensions.
• Private equity has surpassed public equity as the number one asset class family offices invest in.
• With expectations of growth, family offices are hiring with financial services, accounting and consulting firms being their top targets for recruitment.  
• Amid concerns about the next generation’s preparedness to assume control of the family enterprise, family offices are focusing on training.
   

New York, NY, USA 21 May 2024— Today, the release of Deloitte Private’s inaugural Family Offices Insights Series - Global Edition reveals The Top 10 Family Offices Trends of 2024, which covers investing, risk management, hiring, sustainability, succession planning, cybersecurity, digital transformation and more.

Deloitte Global surveyed 354 single family offices from around the world between September and December 2023. These family offices oversee an average assets under management (AUM) of US$2.0 billion, while the associated families have an average wealth of US$3.8 billion (total estimated AUM is US$708 billion and family wealth US$1.3 trillion). The report also conducted in-depth interviews with 40 senior family Offices executives, representing some of the most prominent families in the world. The report and interviews offer invaluable insights for family offices to navigate the landscape and plan for long-term success.

“Providing an overview of the global family Offices landscape, the inaugural edition of Deloitte Private’s Family Offices Insight Series identifies the top trends shaping the industry to inform how leaders can adapt their short- and long-term strategies to succeed,” says Wolfe Tone, Deloitte Private leader, Deloitte Global. “Globally, family offices are tackling ongoing economic challenges and geopolitical conflict—all while mitigating risks both internally and externally. Beyond navigating ongoing talent and digital transformation challenges and shifting investments from public to private equity, leaders are also focused on creating robust succession planning strategies to properly equip the next generation and produce a resilient future.”

Family offices are prioritising risk management and expecting growth

Despite ongoing economic uncertainty, family offices remain dedicated to positioning themselves for success. Seven out of 10 (70%) family offices expect to see their AUM rise in 2024, while nearly eight in 10 (79%) expect the family’s total wealth to increase this year. This comes as family offices rank recession fears, geopolitics and inflation as 2024’s top three market risks. While still a top three concern, inflation has dropped down the list, succeeded by geopolitical risk. In response to these market concerns, managing investment risk is family offices’ number one strategic priority for 2024.

Investments shifting from public to private equity

According to the survey, private equity has officially surpassed public equity as the top asset class family offices invest in. Last year, private equity accounted for 30% of the average family Offices portfolio, up from 22% in 2021.¹  Meanwhile, public equities accounted for 25% of portfolios in 2023, down from 34% in 2021.

More specifically, the report showcases that family offices prefer direct private equity investments, which account for 17% of the average portfolio, over private equity funds, which account for 10%. Family offices are looking to increase private equity investments more than any other asset class in 2024, with 29% of family offices targeting an increase in private equity funds, 27% in direct private investments and 25% in private debt/direct lending. Simultaneously, 29% are targeting a lower cash holding.

European family offices are shifting their focus more toward sustainable investing, while North America is scaling back

Sustainable investing continues to be a hot Topics, as 46% of family offices worldwide currently engage in sustainable investing—up from 42% in 2021. Europe is leading the charge with 57% of family offices now engaged in sustainable investing (up from 45% in 2021), followed by Asia Pacific with 52%. Meanwhile, family offices in North America have been scaling back, as just 26% now engage in sustainable investing, down from 34% in 2021.

This may be due, in part, to the fact that North American family offices are more likely than their regional counterparts to believe that sustainable investments produce lower returns, with 43% of those in North America who do not engage in sustainable investing making this assertion versus just 16% in Europe and 17% in Asia Pacific.

Among those who invest sustainably, climate-related investments are consistently preferred, as nearly two-thirds (64%) of respondents reported that affordable, clean energy is one of their top sustainable investment areas, while 47% reported climate action and 27% sustainable City/communities. Additionally, European offices are more likely to invest in clean energy than any other region surveyed, with 76% investing in this area versus 63% in North America and 48% in Asia Pacific.

Despite discrepancies in sustainable investing between Europe and North America, the average portfolio share of family offices dedicated to sustainability is expected to rise from 17% to 29% globally over the next five years. While 60% of family offices cited their desire to improve the world as a reason for engaging in sustainable investing, half (50%) reported a belief that sustainable investments produce better returns with fewer risks as a core motivating factor.

As family offices expand, they’re looking to evolve their business through hiring and outsourcing

Despite the challenging global economic climate, four in 10 family offices (40%) are looking to hire additional staff this year, with 29% shifting toward more professional (non-family) talent as a means to professionalise their offices further. Currently, 65% of family Offices leaders are family members, while just 35% are non-family professionals. However, roughly half of respondents (49%) expect a non-family professional to assume leadership of their family Offices post-succession. The top three sectors they are currently hiring from are financial services firms (according to 64% of family offices), accounting firms (44%) and consulting firms (25%).

Additionally, family offices are increasingly looking to outsource their services to third parties this year as a means to scale up their initiatives. Increasing 12 percentage points from 2021, roughly a third of family offices today (34%), up from 25% in 2021, are relying more on third parties to improve Services levels, support illiquid assets like private equity and support family members’ personal financial management.

“Family offices worldwide are focused on expansion. In turn, they are exploring various avenues for hiring and retaining talent to stay competitive in today’s evolving market—with many increasingly looking for expertise outside the family to further professionalise their services,” says Dr Rebecca Gooch, Head of Deloitte Private Insights, Deloitte Global. “They are also increasingly relying on outsourcing their services to third parties to scale up their initiates and access specialised knowledge.”

Families are prioritising forward-thinking succession plans that instil confidence and readiness in the next generation

Creating a path to succession is a major priority this year, with 41% of wealthy families undergoing generational succession within the next 10 years, spurring the shift in trillions of US dollars in wealth. The most forward-thinking families have both long-term and short-term (contingency) succession plans in place. However, 41% of families currently operate without a plan for the succession of the family leadership, while 50% of family offices also lack succession plans for their leadership teams.

Moreover, 30% of family offices say they lack confidence that the next generation (Next Gen) of family leadership is prepared for succession within the family Offices and 28% say that Next Gens are unqualified to take over. Family offices cited maturity, qualifications and interest levels as some of the top challenges to succession. As such, 31% say one of Next Gens’ core priorities for 2024 is to receive mentoring/training.

“As the world continues to quickly evolve, family offices globally face a number of challenges and opportunities to drive growth and preserve longstanding legacies,” says Adrian Batty, Family Enterprise leader, Deloitte Global. “Family offices across the world should prioritise succession plans for the next generation that address both short- and long-term goals, identify governance tactics that ensure their offices remain competitive and look to adapt their strategies to future-proof their business.”

Reference

[1] Tracking data from 2021 is pulled from the European Family Offices Report 2021, Deloitte Private/Campden Wealth