The silent but powerful investor: the evolution of the family office

Family offices are booming, driven by a huge transfer of wealth across generations, the tech revolution, and the rapid growth of Asian economies.  

Often shrouded in secrecy, the increasingly powerful sway of these bespoke, diverse platforms for preserving and growing intergenerational wealth means families are increasingly influential players in the investment arena.  

While families tend to take a long-term view, their approaches to investment are changing, especially when faced with the double threat of high inflation eating into value and strong economic headwinds. The rise in costs of running a family office are also putting pressure on the way families manage their resources and influences their investment decisions. 

Family offices are increasingly using agile investment approaches to extend their reach beyond traditional, more conservative investments. For example, a recent report by consulting firm PwC and Family Capital found that family offices have been noticeably active in real estate and private equity and are becoming “increasingly proactive and ambitious in pursuing their goals”.  

Drawing on a database of 5,200 family offices worldwide, the report found that the total number of family office–backed real estate and direct investment deals within and into Europe in 2021 was 934, surpassing the previous high of 901 recorded in 2019. Such deals – where direct investments were overwhelmingly in private equity – were worth a combined US$ 227.6bn. This was also a record high, and accounted for a tenth of the whole market, marking a vigorous bounce-back from a pandemic-impacted dip in 2020.  

The research also revealed that megadeals – those above $2.5bn – were also on the rise, with healthcare and biotech, retail and consumer goods, and automotive and industrial products proving most popular as investment destinations. 

These findings are backed up by recent research by Silicon Valley Bank and Campden Wealth showing that three-quarters of family offices surveyed made venture investments in 2021, about twice the number doing so 10 years ago. 

The family office of the future 

In our work with enterprising families who are either looking to create, or already have, a family office, we encourage families to look at these platforms as more than just money-making machines.  

In fact, to do that would risk missing out on the greater benefits that can accrue when the family office is a core part of a family’s ecosystem, values, and purpose.  

In the age of stakeholder activism, purpose and ESG (environmental, social, and governance) considerations, families must also understand their role and responsibilities in the global economy and respond to demand for greater accountability and responsible investment, especially as they exercise increasing influence on the fate of larger corporations through their private equity investments and the real estate market. 

As part of a holistic approach to managing an enterprising family, family offices can be the central hub and catalyst that nurtures and protects the entire ecosystem. In turn, we believe this leads to better investment decisions that are more aligned with the overall family purpose and activities and a sense of internal and external stewardship, managing the wellbeing of the family and the community it exists in.  

My forthcoming book, Family Office Navigator, offers a practical guide to creating a family office, or to update an existing one, to build a sustainable, healthy family enterprise system by focusing minds on the purpose of the family and the appropriate focus and organization of each family office.  

We see this as the next evolutionary step in the history of the family office in a post-COVID world, in which enterprising families embrace this platform as an opportunity to reflect and act on their wider responsibilities to society while strengthening their family ecosystem and building for the future. 

As families grapple with challenging circumstances, and society adapts to the growing influence and changing habits of wealthy dynasties, especially in the way they invest, we see several ways to optimize impact in a positive way for all stakeholders.  

Enterprising families should carefully reflect on the purpose, focus, structure, and governance of their (future) family office and ensure the family’s ambitions are mirrored in the family office strategy. Only with clear guidance from the principal family can the family officers take good, long-term-oriented decisions.