Key findings from Ocorian’s new report – an international study with more than 130 family office professionals responsible for around $62.425 billion assets under management.
Ocorian, the specialist global provider of services to high-net-worth individuals and family offices, financial institutions, asset managers and corporates, has launched a new report from an international study* with more than 130 family office professionals responsible for around $62.425 billion assets under management. The report, ‘Family Offices and the role of third-party service providers’ looks at the role of third-party providers now and in the future, as well as the factors that are likely to contribute to the evolution of the family office ecosystem.
Family offices making a long-term switch to investing in alternatives
Almost all family office investment managers agree that the sector is increasingly investing in alternatives and the switch is a long-term trend. Around 42% strongly agree with the view.
The alternative asset classes seeing the most benefit from the switch in allocations are likely to be real estate and private debt – the study found a third (34%) say their funds will increase allocations to real estate by 50% or more while 33% will make the same increase in allocations to private debt.
Family office investment managers said the strong performance of alternatives is the key reason for the switch followed by the diversification benefits and increasing transparency in the asset class. Increased choice in the sector was the fourth most popular reason for investing ahead of inflation protection and the ability to provide regular income.
The research found funds are the most popular vehicle for investing in alternative assets. Around 77% questioned said they are seeing growth in funds ahead of 56% who say they’ve seen growth in SPVs and GPLPs.
Next-generation becoming more involved with investment strategy
86% of family office professionals report more involvement from the next generation in developing and reviewing the investment strategy of their family office. More than a third (35%) of those questioned say the next generation is becoming much more involved.
Around 85% of those questioned say younger family members focus on the long-term sustainability of the family office when they become involved in investment strategy while 84% want to focus more on ESG considerations of the strategy.
However, the research found increasing interest in private markets investment and digital assets. Around 78% said younger family members want the investment strategy to include private markets and 74% want it to look at digital assets.
Succession planning is crucial
Nearly half (46%) strongly agree that as family offices increasingly manage significant wealth there is a growing realisation that more needs to be done around succession planning. This is particularly important in the smaller group of family office investment managers who don’t currently see a natural succession of wealth and leadership amongst their clients.
The research found that while 88% of family office professionals can see a natural succession of wealth and leadership within the families for whom they manage the wealth, there are 8% who don’t and 5% who are unsure.
ESG is part of ‘fiduciary duty’
94% agree that ESG principles are a key consideration when it comes to family office investment priorities, with 40% strongly agreeing.
The research shows that 91% believe ESG is part of family office’s fiduciary duty and 88% predict an increasing focus on ESG principles from a fiduciary perspective over the next three years. Nearly two out of five (37%) predict a dramatic increase. Just 11% believe it will stay the same as today and only 1% think it will decrease.
Investing in crypto and digital assets
Nine in ten (90%) said they are seeing their clients looking to include crypto and digital assets within their investment strategies. However, 80% are struggling to outsource to third parties who are willing to provide support with the regulation and reporting obligations of digital assets.
Rise in outsourcing
Family offices are set to outsource more key services as pressure builds from clients for a wider range of support and more sophistication. Around 91% say outsourcing will grow over the next three years with 28% predicting a dramatic increase over the period.
The key reason for increased outsourcing identified by the research is pressure from family office clients for more sophisticated services. Around 83% of family office professionals predicting an increase in outsourcing say family offices want more specialised services. However, 57% say the rising risk appetite of family offices globally is also driving increased demand for outsourcing.
Nearly two out of five (37%) believe regulatory pressures are driving family offices to turn to outsourced suppliers for support while around one in five (20%) say outsourcing is more cost-effective.
The research found family offices already make extensive use of third-party support. Nearly two out of three (63%) say they use third parties for support on illiquid assets such as private equity while 60% turn to third parties for help with personal financial management for family members. Nearly half (48%) receive support with liquid investments. Around 71% of family office professionals questioned say outsourcing will enable them to improve overall service levels while 59% say it allows them to focus on their core strengths.
Michael Betley, Global Head of Private Client at Ocorian said: “The Family Office has been on an inexorable rise in recent years. With greater demand than ever for the services of single and multi-family offices, it stands to reason that third-party providers have become essential allies in the mission to provide an exceptional and complete service to the underlying families.
“Alongside the sheer demand is an increased complexity of wealth planning and needs. As sophisticated structuring becomes more commonplace, and cross-border considerations become essential for many families, the expertise of third-party providers is just as important as the scale they provide. At Ocorian we have many of the foundations in place to meet the current and future needs of Family Offices. We apply intellectual solutions to all problems, find bespoke solutions to individual needs and are always adapting to reflect the world of our clients and the families they represent.”
Ocorian’s award-winning dedicated family office team provides a seamless and holistic approach to the challenges and opportunities families face. Its service is built on long-term personal relationships that are founded on a deep understanding of what matters to family office clients. Its global presence means Ocorian can provide bespoke structures and services for international families no matter where they live.
*Ocorian commissioned independent research company PureProfile to interview 134 family office investment managers working for family offices which use third-party private client services providers to support the preservation and protection of their clients’ wealth. The investment managers interviewed are responsible for assets under management of $62.45 billion and include 63 working for multi-family offices. The global study interviewed family offices in the US, UK, Canada, China, Germany, India, Norway, Saudi Arabia, Singapore, South Africa, Sweden Switzerland, UAE, Denmark, France and Japan from February – March 2023.