Family offices have become increasingly popular in the private wealth management industry over the past 5 years. They are increasingly favored as the preferred choice for the wealth management of ultra-high net worth individuals or families due to the greater control and flexibility they offer compared to traditional wealth management firms.
A brief analysis of the following growth signals will help quantify the current state of the family office industry and will also provide insight into what we can expect in the future.
Rapid growth in the global number of Family Offices
The number of family offices around the world has grown steadily over the past decade. A recent study by Mordor Intelligence reported that the number of family offices worldwide at the end of the second quarter of 2019 stood at 7,300, a 38% year-over-year increase from 2018. North America held the largest share of family offices with 42%, followed by Europe and Asia at 31.5% and 17.8% respectively. However, Asia saw a 44% growth in the number of family offices, compared to 41% in North America and 28% in Asia.
This recent growth in the number of family offices can be directly attributed to the growth in the number of ultra high net worth individuals (UHNWIs) across the world. A recent study showed that the global UHNWI population increased by nearly 9.3% between 2020 and 2021 to a total of 610,568. A key driver of this surge has been lifestyle changes due to the pandemic. . Among the major markets, North America saw the strongest growth at 12.2%, while Europe and Asia saw similar growth at 7.4 and 7.2% respectively.
Steady growth in assets under management
Assets Under Management (AUM) is defined as the aggregate market value of assets that are at the discretion of a financial institution, and in this case, any Registered Investment Advisor (RIA). A 2020 Deloitte report studied the growth of AUMs of different RIA levels since 2016 and reported an overall growth of 8.6% CAGR.
However, the study also pointed out that RIAs with AUMs below $150 million had a negative average growth rate of 12% while those with more than $400 million in AUM had an average growth rate of 10%. %. This clearly indicates favorable market conditions for family offices looking to bet on long-term asset growth.
An active market for mergers and acquisitions
Multi-family offices (MFOs) around the world are increasingly opening up to the mergers and acquisitions (M&A) market to put more emphasis on inorganic or disruptive growth.
Inorganic growth is a great way to increase the scalability of a business in a short period of time and while ensuring maximum productivity. Multi-family offices can sell for a number of reasons, such as the loss of a key team member or a generational shift in ideologies. On the other hand, purchasing MFOs do so to fill gaps in their services.
For example, New Jersey-based multi-family office giant Pathstone had smartly used mergers and acquisitions to grow rapidly since its founding in 2010. In 2020, the company acquired Price Wealth for $1.3 billion. dollars and Cornerstone for $4 billion. These quick acquisitions swelled Pathstone’s effective consulting assets to $25 million in just a few months.
Rise of professional communities and exclusive memberships
The increase in the number and popularity of family offices has, in turn, given way to the birth of various professional communities that offer exclusive memberships. These communities bring together both seasoned professionals and newcomers to the private wealth management industry to forge stronger peer-to-peer connections. They also serve as forums for sharing knowledge and expertise in the field and are often the preferred mediums for better understanding new asset classes and investment opportunities.
Increased participation in family heritage summits
The growing popularity of family offices has naturally led to increasingly prominent summits and conferences where family office professionals and UHNW individuals and families can share the latest updates on industry and business practices.
Ecosystem players build a more dedicated focus
Beyond banks, many other global players serving the private wealth management segment have added or expanded their support or family office-specific offerings.
- Many private sector banks now have dedicated hedging teams
- The Big 4 – All take a slightly different but dedicated approach to this market. For example, this 2017 report from KPMG International highlights the company’s outlook for family office operations.
- Most of the big consulting firms like BCG, McKinsey and Egon Zehnder have also set up dedicated teams that take care of their family office services.
Interest in the subject and media coverage
According to Google Trends, public interest in this topic has roughly doubled in the past 5 years. Other platforms, including many data platforms such as Crunchbase, as well as some of the more specialized providers, have also increased their tracking of family office investment activity. Such heightened public interest in the subject signifies its gradual exposure over the years.
With all of that said, there is still a lot of vagueness with searches for “family office definition” being tracked as a term that often sees an increase in 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 an important market in the global business landscape, we are seeing more and more employment opportunities and family office jobs available across various industry sectors. .
- Being an extremely fast-paced and highly volatile industry, specialists and experts in the field such as cybersecurity professionals, impact investment experts, risk managers, etc. are always sought after by MFOs and SFOs.
- A clear trend can be seen in the increase in compensation offered by family offices across the United States
- Many large portals now offer dedicated employment sections for family office professionals.
A privileged vehicle of new wealth
With both intergenerational wealth transfers and the creation of new wealth coming primarily from technology entrepreneurs, family offices continue to grow in popularity as one of the preferred vehicles for structuring and managing that wealth.
Although there is still a lack of definitions, thanks in large part to the direct investment market, much family office data is becoming more transparent and better structured. All of this will help the market move forward.