Family Office Trends for 2020

Reduced Global Wealth

According to Forbes:

  • As of March 18, 2020: There are 58 fewer billionaires than there were at the same time last year.
  • Ultra-rich individuals and families collectively control a total fortune of $8 trillion, a drop of $700 billion from 2019.
  • The United States lost 500,000 millionaires in March 2020, after reaching a record high number of millionaires (11 million) in 2019.

The sharp decline in global equity markets has taken a toll on global fortunes, and COVID-19 and subsequent market losses will affect how family offices operate and invest.

Preparing for COVID-19 and a Recession

Even before the pandemic, family offices had already begun planning for a slowdown.

According to the Global Family Office Report 2019 from UBS and Campden Wealth Research, 55% of family offices were expecting a market downturn in 2020 and half had begun shifting their investment strategies to reduce risk. With the outbreak of COVID-19, their concerns and actions have been validated, and their preparation was not in vain.

According to a study from, the family offices in the survey performed better than most stock markets. 57.1% of the family offices experience losses ranging from 0% to 10%, and only 7.1% reported losses between 20% and 30%.

Despite the preparation, most family offices’ operations are not completely immune from the market fallout. In that same study from, 80% of family offices surveyed stated their daily work has been impeded by the pandemic.

Family offices should develop business continuity plans, and staff should keep all family members informed on what the organization will do to weather the coronavirus pandemic.

Our recent post, 6 Lessons RIAs can Learn COVID-19, offers helpful advice in coping with the pandemic.

Challenges Working from Home

Like the rest of the investment management industry, family office employees are working from home, and with that comes security risks.

Another challenge with working remotely is keeping employees fully engaged and productive. In some of our latest posts, we explain how investment firms can track team performance working home.

Staying home for several weeks, if not months, can take a toll on employees’ mental health; here are some useful tips in dealing with COVID-19.

Technology Upgrades Needed

The private wealth industry has been slow to adopt technological change.

As Craig Iskowitz founder and CEO of advisory consulting firm Ezra Group, puts it, “If (family offices) choose not to innovate, they risk going the way of Sears or Blockbuster.”

And working from home only hastens the need for family offices to make much needed improvements.

How dependent have family offices been on locally stored computers and servers? When staff is working from home, do they have to remotely connect to office desktop computers and software?

Remote connection issues and technology troubleshooting will slow down productivity, and the move to secure, cloud-based applications can solve those problems. For example, our web-based, TAMP1 platform gives family offices a single place to manage data, reports, investment performance, documents, and communication with family members.

Unlike legacy systems that have a limited number of licenses available for access at a single time, web-based solutions have no such restrictions.

Data updates in real time are another reason to move to new cloud-based technology. With efficiencies in turnaround time and reporting accuracy, family offices have information they need to make informed decisions faster than before.

And according to McKinsey when firms become digital leaders in their industry, they have faster revenue growth and higher productivity than less-digitized peers.

While family offices have once been hesitant to upgrade software due to cost and complexity concerns, the number of cloud-based, Software-as-a-Service (SaaS) solutions are more affordable and easier to implemented, according to PwC’s Danielle Valkner Family Office Leader.

Consider Client Technology Demands

As the world has gone more mobile and digital, accessing everything from their devices whenever and wherever has become normal. While older generations in the family may not be as quick to demand the latest and greatest in mobile apps and fintech, younger generations will.

Learn more:
6 Essential Tools Financial Managers Need to Go Digital

If family offices, single-family offices in particular, do not make these adoptions, they “risk losing the more technically adept third generation to the MFO (multi-family office) down the street that offers a more modern client experience,” according to Craig Iskowitz.

A platform like TAMP1 can offer that modern client experience by providing a web-based portal for clients, so they too can see data and investment portfolio performance in real time from their devices.

Use of Artificial Intelligence

From a UBS survey, 87% of family office respondents agree that artificial intelligence (AI) will be the biggest disruptive force in global business.

AI, when its capabilities are fully realized, can perform tasks at greater speed and efficiency than humans. While that may sound “scary” to some, the key is to look at how AI can free up human time to focus on higher-value, client-facing activity.

As forward-thinking firms will employ the latest technology to maximize efficiency, family offices that want to stay ahead of the curve will follow suit.

Optimism and Investment Opportunity for Family Offices

Despite reduced levels of global wealth, family offices remain optimistic about the future.

According to the aforementioned study from, 86.7% of family offices are looking optimistically into the post-coronavirus future, as 60% expect a significantly better financial market situation in the next 12 months, and 26.7% expect a slightly better situation (March 2021 vs. March 2020).

Given anticipation of a downturn and market volatility in 2020, 42% of family offices began increasing cash reserves, according to a UBS survey from 2019.

For these firms, not only have they reduced their risk, but they have positioned themselves well to benefit from purchasing assets at reduced prices.

Peter Sasaki, a managing member at SDS family office, explains what (many) family offices are doing during COVID-19:

“Many family offices have long been hedging their investment portfolios against increased volatility… A variety of innovative approaches are being used that cover both their liquid investment portfolios and their extensive venture and private equity holdings. Some family offices are increasing their use of safe haven investments such as precious metals and occasionally cryptocurrencies. At the same time, a large number of family offices are benefitting from the market volatility in their hedge fund portfolios and some are using the market downturns to—in their view—pick up solid investments at temporarily depressed prices.”

Private Equity and Direct Investing; Moving Away from Hedge Funds

According to UBS, over 80% of family offices invest in private equity, and of those family offices, an increasing number of them are making direct investments, rather than going through a hedge fund.

Hedge funds on average now account for only 4.5% of family office total asset holdings, compared to 19% for private equity.

High fees and low returns are commonly cited reasons in the move away from hedge funds, and in the shift to private equity, UBS states that 54% of family office investments in private equity are direct.

Here are a few reasons why family offices like direct investing:

  • Greater control
  • The appeal to entrepreneurial families for a more hands-on approach to their investments.
  • Reduced fees

Further justifying the move is that, according to UBS data, direct investments in private equity outperformed investments into funds of private equity.

Growing Popularity in Impact Investing

High-net worth families are increasingly conscious of how they are perceived by the public and how their investments affect society and the environment. As a result, impact investing has become a popular way to contribute to a greater societal good.

  • One-third of family offices are engaged in sustainable investing.
  • One-quarter are engaged in impacting investing.

And of those engaged in sustainable and impact investing, these investors predict that within the next five years (2019 to 2024), one-third and one-fourth of the average portfolios will consist of sustainable and impact investments, respectively.

Helping drive this trend are the millennials, who are coming of age to have a say in managing of the family’s assets. A generation that is less concerned with material items like yachts and airplanes, millennials are described by the The Family Office Exchange (FOX) as “sophisticated, highly educated, and well-traveled”, and they shave shown a preference to investing in environmental, social and governance (ESG) projects.

Rise of Blockchain

57% of family offices believe blockchain technology will fundamentally change the way we invest.

While firms should consider the opportunities and risks of cryptocurrency investing, there are some inherently attractive features in blockchain.

From an investor due diligence standpoint, blockchain technology is unique in its ability to automate the processes associated with reporting and record-keeping. Furthermore, blockchain can automate procedures associated with risk assessment and risk allocation in ways humans couldn’t.

Learn more: Blockchain Explained

Changing Risk Appetite

In the midst of a market downturn, KPMG sees a shift in family offices moving from a strategy of growth to one of wealth preservation and asset protection, and these findings are further supported by firms reducing risk exposure and building cash reserves in 2019.

Threats to cash flow should be monitored closely, and those threats should ultimately determine the level of risk tolerance.

Family Office Succession Planning Issues

Setting up succession plans for family offices in emerging markets, particularly for Gulf Cooperation Council (GCC), is a concern. According to an Invesco study, “In the GCC, most wealth is first generation so new inheritance structures need to be developed for large families within local legal frameworks.” Finding appropriate service providers for managing this wealth is often in mature markets in the United States and Western Europe, where legal and financial frameworks are better suited for these families’ situations.

If the local laws are ill-equipped to handle wealth distribution among family members, then the challenge lies within a succession plan itself. Setting up such a plan over the course of 12-24 months is a top priority, and 69% plan for an inter-generational wealth transfer within 15 years, according to Campden.

Regardless of region, transitions don’t always go smoothly:

  • A lack of interest or qualification in running a family office among the younger generations
  • An unwillingness to give up control among the older generations
  • Generational disagreements over investment strategies after the transition
  • Distrust in how the family office will be run

Rising Operational Costs

What else is new?

COVID-19 has helped alleviate some of the traffic and pollution issues (temporarily at least), and while these bad things have disappeared, what hasn’t disappeared are operational costs for family offices.

KPMG says firms should prepare for potential additional costs related to medical sick-leave during the pandemic, in addition to subsequent losses in productivity.

As rising costs and threatened cash flows hurt profit margins, outsourcing for family offices is one way to reduce costs and attain operational efficiency. Leveraging the technology and expertise of third-parties can mitigate the risk associated with in-house functions.

According to Rick Flynn, a managing partner of Flynn Family Office, “More successful family businesses are today relying on outsourced family office services providers to achieve greater control and cost savings while managing toward defined family wealth objectives.”