Family offices have become increasingly popular in the private asset management sector in the last 5 ... [+]
Family offices have become increasingly popular in the private asset management sector in the last 5 years. They are being increasingly preferred as the go-to choice for wealth management for ultra-high-net-worth individuals or families due to the greater deal of control and flexibility that they provide as compared to traditional wealth management firms.
A brief analysis of the following growth signals will help quantify the actual state of the family office industry and also provide an insight into what we can expect from the future.
Rapid Growth in the Global Number of Family Offices
The number of family offices across the globe has risen steadily over the past decade. A recent Mordor Intelligence study reported that the number of global family offices at the end of Q2 2019 stood at 7300 - a 38 percent year-over-year increase as compared to 2018. North America had the largest share of family offices at 42 percent, followed by Europe and Asia at 31.5 percent and 17.8 percent respectively. However, Asia reported a 44 percent growth in family office numbers as compared to 41 percent in North America and 28 percent in Asia.
This recent growth in the number of family offices can be attributed directly to the growth in the number of ultra-high-net-worth individuals (UHNWIs) across the globe. A recent study has shown that the global UHNWI population has grown by nearly 9.3 percent between 2020 and 2021 to a total of 610,568. A key driving factor for this surge has been the lifestyle-related changes due to the pandemic. Among the major markets, North America, witnessed the highest growth at 12.2 percent, while Europe and Asia saw similar growth at 7.4 and 7.2 percent respectively.
Steady Growth of Assets Under Management
Assets under management (AUM) is defined as the overall market value of assets that is under the discretion of a financial institution, and in this case, any registered investment advisors (RIAs). A 2020 Deloitte report studied the growth in AUM of various levels of RIAs since 2016 and reported a general growth at 8.6 percent CAGR.
However, the study also highlighted that RIAs with AUM less than $150 million showed a negative 12 percent average growth rate while those with over $400 million in AUM showed a 10 percent average growth rate. This clearly indicates favorable market conditions for family offices who are looking to bet on long term asset growth.
An Active Mergers and Acquisitions Market
Multi-family offices (MFOs) across the world are becoming increasingly open to the mergers and acquisitions (M&A) market to put greater emphasis on inorganic or disruptive growth.
Inorganic growth is a great way to increase the scalability of a company manifold within a short span of time and all the while ensuring maximum productivity. Multi-family offices might sell for a number of reasons like losing a key team member or encountering a generational shift in ideologies. On the other hand, buyer MFOs do so in order to bridge out gaps in their services.
For example, the New Jersey-based multi-family office giant Pathstone had cleverly used M&A to grow rapidly since its founding in 2010. In 2020, the company acquired Price Wealth for $1.3 billion and Cornerstone for $4 billion. These rapid acquisitions bumped Pathstone’s effective advisory assets to $25 million within a mere couple of months.
Rise of Professional Communities and Exclusive Memberships
The rise in the number and popularity of family offices has, in turn, made way for the birth of various professional communities that offer exclusive memberships. Such communities bring together both seasoned professionals as well as newcomers to the private wealth management industry to forge stronger peer-to-peer connections. They also serve as forums for shared knowledge and field expertise and are often the preferred mediums to gain insight into new asset classes and investment opportunities.
Increased Attendance at Family Wealth Summits
The rise in popularity of family offices has naturally led to increasingly large-scale summits and conferences where family office professionals and UHNW individuals and families can share the latest updates on the industry and trade practices.
Ecosystem players building out a more dedicated focus
Beyond banks, many other global players servicing the private wealth management segment have been adding or developing their family office-specific support or offerings.
- Many private sector banks now have dedicated coverage teams
- The Big 4 - All of them take a slightly different yet dedicated approach to this market. For example, this 2017 KPMG International report highlights the firm's outlook toward family office operations.
- Most of the big-name consultancies like BCG, McKinsey, and Egon Zehnder have also established dedicated teams that cater to their family office services.
Interest in the topic & media coverage
According to Google Trends, public interest in this topic has approximately doubled over the last 5 years. Other platforms, including many of the data platforms such as Crunchbase, as well as some of the more niche providers have also increased their tracking of family office investment activity. Such increased public interest in the topic signifies its incremental exposure over the years.
With all of this said there’s still a lot of unclarity with searches for “family office definition” being tracked as a term that often sees increased searches. This indicates that despite their growing popularity, many people are still unaware of what family offices are and the services they offer.
Employment and family office jobs
As the market matures and family offices become a significant market in the global business landscape, we see more and more employment opportunities and family office jobs coming available across various sectors of the industry.
- Being an extremely fast-paced and highly volatile industry, specialists and domain experts like cyber security professionals, impact investment experts, risk managers, etc are always sought after by MFOs and SFOs alike.
- A clear trend can be observed in the increase in compensation offered by family offices across the U.S.
- Many large portals now offer dedicated job sections for family office professionals.
A preferred vehicle for new wealth
With both intergenerational wealth transfers and new wealth coming online from mainly tech entrepreneurs, family offices continue to grow in popularity as one of the preferred vehicles to structure and manage this wealth.
Even though there’s still a lack of definitions, largely on the back of the direct investment market a lot of the data around family offices is becoming more transparent and better structured. This will all support the market to move forward.
