CASTLE FAMILY OFFICE

The Family Office Cybersecurity Report, 2024 . #castlefamilyoffice #deloitte Welcome to The Family Office Cybersecurity Report, which is the fourth edition of Deloitte Private’s new Family Office Insights Series. This report offers invaluable insights into family offices’ experience with cyberattacks, the means they are using to protect themselves, and what activities they can adopt to help safeguard themselves against future attacks.  The data in this report is based on a survey of 354 single family offices from around the world between September and December 2023. These offices oversee an average assets under management (AUM) of US$2.0 billion, while the associated families have an average wealth of US$3.8 billion. Collectively, this totals an estimated US$708 billion in AUM and US$1.3 trillion in family wealth (figures 1 and 2). We also conducted 40 in-depth interviews with senior family office executives to provide quotations and case studies with personal insights that can help family offices to better understand their peers. To make the findings as useful and relevant as possible, this report is interactive, with the option to scroll through the findings by region and size (AUM above and below US$1 billion). We hope these insights prove useful in shaping cybersecurity planning for your family office, and we would like to offer a heartfelt thank you to all participants who generously shared their time and perspectives. 

AI in Family Offices: Navigating the AI Frontier in Wealth Management and Fiduciary Liability. #castlefamilyoffice #AI Artificial intelligence (AI) has made waves across various industries, and wealth management is no exception. AI’s ability to analyze vast amounts of data and generate insightful reports has the potential to significantly enhance the efficiency and effectiveness of wealth management firms. However, the integration of AI also brings certain risks, particularly for fiduciaries in the family office context. This is the final installment in a three-part series on AI for ArentFox Schiff’s Family Office Newsletter. First, we evaluated the risks associated with the use of AI in estate planning and family offices, focusing specifically on concerns surrounding privacy, confidentiality, and fiduciary responsibility. Next, we examined the impact of AI on fiduciary decision-making and the rendering of client services and the consequences for the next generation of family office professionals. In this installment, we examine the growing use of AI in wealth management and the accompanying risks of fiduciary liability. We will also explore both the opportunities and challenges associated with AI for wealth management in family offices. AI’s Potential in Data Analysis and Reporting One of the most significant advantages of AI in wealth management is its ability to process and analyze large volumes of data faster and more accurately than humans. Wealth management firms often deal with complex financial data, including market trends, investment portfolios, and client financial histories. In the world of wealth management, data is a treasure trove that, when effectively harnessed, can lead to profound insights and competitive advantages. Conclusion While AI offers potential benefits for wealth management firms, it is crucial to manage the associated risks carefully. The integration of AI can lead to more efficient data analysis, insightful reporting, and better investment decisions. However, fiduciaries must remain vigilant and ensure that AI systems are used responsibly and ethically. By adopting a balanced approach, family offices can harness the power of AI to deliver better results for their clients while upholding their fiduciary duties. This involves continuous monitoring and a commitment to ethical practices. Additionally, transparency regarding how AI tools influence decision-making processes is crucial. Failing to clearly communicate these methodologies could further complicate fiduciary responsibilities and undermine client trust. With the right approach, AI can be a powerful tool for family offices, enabling them to navigate the complexities of the financial landscape and achieve long-term success for their clients with AI complementing — rather than replacing — their fiduciary decision-making. https://lnkd.in/eFe8VjFa

Competition increases for family offices across Asia. #castlefamilyoffice #singapore #bloomberg Over the past five years, the family office industry in Asia is seeing rising competition. As one of Asia’s top financial centers, Hong Kong has long been known as a family office hub in the region. But it began to lose luster in 2020 when China introduced the national security law for Hong Kong, criminalizing any act of secession, subversion, terrorism and collusion with foreign or external forces. In 2021, as part of its efforts to promote its “common prosperity” concept, Beijing implemented large scale regulations and cracked down on perceived excesses of private industries, most prominently in the technology and property sectors. It also passed new anti-monopoly rules, including one that stopped companies from using algorithms to make users spend more or to disrupt social orders. Many Chinese technology companies, including Alibaba Group, Tencent Holdings and Baidu Inc, were fined for breaking the new laws. Meanwhile, the number of family offices in Singapore has grown from 400 in 2000 to 1,650 in August 2024. Tax incentives and the introduction of the variable capital company (VCC) structure in the city state in 2019 were among the factors that drove the increase. Ultra-rich individuals that have set up family offices in Singapore over the past three years include Ray Dalio, founder of hedge fund management firm Bridgewater Associates, Google co-founder Sergey Brin, and Shu Ping, the Chinese billionaire behind Haidilao International Holdings, the world’s biggest chain of hotpot restaurants. In 2023, Hong Kong upped its ante, and introduced new measures to attract single family offices. In May, the Hong Kong Legislative Council passed a law for a concessionary tax regime for single family offices, exempting investment profits from the profit tax when specific conditions are met. A month later, InvestHK, a government department responsible for foreign direct investments, launched a Network of Family Office Service Providers to create a supportive ecosystem for family offices globally looking to establish or expand their presence in Hong Kong. Emergence of new players. This year, two other Southeast Asian countries were seen to be trying to replicate Hong Kong and Singapore’s wealth management success, by introducing measures to woo single family offices. In July, Luhut Pandjaitan, Indonesia’s chief investment minister, said the country is in the midst of setting up guidelines and regulation frameworks for family offices in Indonesia, with the details expected to be announced this October. Meanwhile, just last month in September, Malaysia announced it will be offering a zero tax rate for single family offices, as part of the government’s plan to become a more “dynamic player on the global financial stage”. https://lnkd.in/e49svbWk

Singapore vs. other international wealth markets #castlefamilyoffice #singapore 1. Political and Economic Stability Singapore offers a stable political and economic environment, crucial for wealthy individuals looking to safeguard their assets. As highlighted in two articles from EDB and the GTN Group, this stability is a key factor distinguishing Singapore from other markets where political or economic uncertainties might threaten wealth preservation. 2. Strategic Location and Connectivity As reported by The Straits Times, Singapore’s strategic location in Southeast Asia, coupled with its strong connectivity to both regional and global networks, makes it an attractive hub for family offices. This strategic positioning is advantageous for wealthy families, who can leverage Singapore’s connectivity to expand their business interests globally. 3. Cultural Affinity Underscored by a report from The Asian Affairs, Singapore’s ethnically Chinese-majority population provides a cultural affinity that particularly appeals to wealthy Chinese families. This cultural similarity helps ease the transition and integration of these families into the local community, making Singapore a preferred choice over other international markets. 4. Tax and Regulatory Framework According to an article published by the Singapore Business Review, Singapore’s tax and regulatory framework is designed to be business-friendly and compliant, essential for attracting and retaining wealthy families. The city-state offers tax incentives for family offices, a significant draw for high-net-worth individuals looking to manage their wealth efficiently. 5. Response to Financial Crimes In response to high-profile financial crimes, Singapore has tightened its regulatory framework, implementing more rigorous screening processes for family office applicants. This proactive approach reassures international investors that Singapore is committed to maintaining a clean and transparent financial environment, which is a differentiating factor compared to other markets, as per a report by the Asian Investor. In contrast, other international wealth markets may not offer the same level of political stability, cultural affinity, or strategic location as Singapore. For instance, Hong Kong, a significant wealth management centre, has faced challenges due to political unrest and different regulatory environments, which can deter wealthy Chinese families from choosing it over Singapore. https://lnkd.in/eEGEsDfx

Focus On Wealth Transfer, Family Harmony No Surprise In Unsettled Times – Citi Private Bank. #castlefamilyoffice #citi Last week, this news service interviewed the private bank about its global survey of family offices' views on investments, the economy, and what holds their attention. “As we embark on one of the greatest wealth transfers in history, it is not surprising to see the amount of emphasis on wealth transfer,” Hannes Hofmann (pictured), head of the global family office group at Citi Private Bank, told Family Wealth Report when asked about the report’s findings, as published last week.  “We can see that the focus on fostering family unity and continuity increases with each generational wealth transfer, and what we found interesting about the survey results this year, was that while the next gen wealth transfer was a priority across all family offices, it was more pressing for third-generation families (67 per cent) compared to first-generation (56 per cent)." FWR interviewed Hofmann on the day the US Federal Reserve cut interest rates by 50 basis points. The publication asked him if, with the shift from cash as shown by the report, he thought the period of higher interest rates in changing allocations has run its course. “The future path of interest rates is a top concern for survey respondents, with over half citing it as their number one concern. As the rate environment continues to evolve, family offices are moving their cash into investments, with a focus on public and private equity,” he said. “Our investment guidance in the current rate environment continues to include diversification and smart risk-taking that supports families’ long-term view. Family offices are uniquely capable of making long-term investments, so we encourage them to avoid sweeping portfolio alterations based on rate speculations.” Asked about the optimism over the economic outlook that came out in the report, Hofmann noted, for example, that when looking at alternative investments, family offices are also optimistic about real estate investments.  “Even as interest rates emerged as family offices’ top concern (according to 52 per cent of respondents), their allocations to real estate remained the most stable for the second year in a row,” Hofmann said. “It is particularly interesting to see how sentiment differs amongst family offices, depending on where they are based in the world. If you look at the regional breakdowns, the survey reports that family offices in Asia-Pacific and Europe, the Middle East and Africa for example, were the most positive on the outlook for global developed equities, at 48 per cent and 46 per cent respectively,” Hofmann continued.  https://lnkd.in/emKX_TxV

Singapore Adds Hundreds of Family Offices in 2024. #castlefamilyoffice #singapore The ultra-rich continue to opt for Singapore as their hub of choice with hundreds of more family offices being established in the city-state in 2024. In the first eight months of 2024, the Monetary Authority of Singapore (MAS) has awarded another 250 family offices with tax incentives, according to Chee Hong Tat, deputy chairman of the regulator, in a speech at the Wealth Management Institute’s «Global-Asia Family Office Summit». In total, 1,650 single family offices have been awarded tax incentives, up from 1,400 at end-2023 and 400 in 2020. Chee said that he expects the number of new family offices in 2024 to surpass the 300 added in 2023. «To those who have recently chosen to set up your family office here, a warm welcome to Singapore,» he said at the two-day summit. «You have joined us at a good time – Asia’s prospects ahead are bright and the growth momentum remains strong.» Industry Growth Chee also highlighted the growth in assets under management (AUM) and the private banking industry. In 2023, wealth management AUM increased by 8 percent, resulting in a five-year compounded annual growth rate of about 10 percent. And in the first quarter of 2024, client assets at Singapore’s leading private banks grew 9.5 percent year-on-year. Chee cited expanding teams and offerings at private banks including Bank of Singapore, UOB, Citi, HSBC and Nomura. Strengthening the Ecosystem According to Chee, there is further potential for family offices to grow and contribute in the city-state. He highlighted three main areas: philanthropy; private equity and venture capital investments; and building talent and capabilities. «Wealth owners choose Singapore for many reasons – our strong rule of law, robust and predictable regulatory regime and a comprehensive ecosystem of wealth managers and professional service providers are also some of the reasons,» added Chee who is also the Minister for Transport and Second Minister for Finance. «Equally important to wealth owners who spend time here is our high quality of life, our safe and secure environment which is family-friendly, and our excellent connectivity with the rest of the world, as well as our world-class education and healthcare systems.» https://lnkd.in/eCv9qHNq

Asia-Pacific set to outpace all regions in family office set-ups by 2030, Deloitte says. #castlefamilyoffice #deloitte The number of family offices and the amount of wealth they manage are expected to surge over the next six years, with growth in Asia-Pacific projected to surpass the pace in other regions including North America, according to a report by Deloitte. Single family offices in Asia-Pacific could increase by 40 per cent to 3,200 by 2030, and by 32 per cent to 4,190 in North America, Deloitte Private said in its global report released on Wednesday. The Middle East is still a “nascent” market, which is projected to expand 21 per cent by 2030 from 290 offices currently. Globally, family offices are set to expand by one-third to 10,700 by 2030, with US$9.5 trillion of wealth between them, up from only US$5.5 trillion currently, according to the report. “The pace at which the landscape in North America is expanding is slowing down given its relative maturity, while in Asia Pacific it is heating up given its more recent emergence in family offices,” according to the report. The forecasts could prompt authorities in Hong Kong to step up their efforts to entice them to the city after dangling several sweeteners recently including permanent residency and tax breaks. It’s a sector pursued by Singapore and other rival financial hubs to help boost capital inflows, investment and employment in their economies. Deloitte Private said family-offices are becoming more popular due to several reasons, including increased wealth concentration, successful transfers of generational wealth, the sale of family-owned businesses and the pursuit of more customised investment strategies and services. Family wealth typically includes both the family office’s assets under management plus other assets it holds in its operating businesses, according to Deloitte. The increase in wealth also underscores the need for sophisticated global wealth management structures, the report added. Their combined assets under management are expected to rise by 73 per cent to US$5.4 trillion globally by 2030, highlighting their growing influence in markets. The family offices with the greatest investment power are based in North America, which has a total estimated assets of US$1.3 trillion, followed by Europe with US$949 billion, Asia-Pacific US$590 billion, and the Middle East US$159 billion, Deloitte said. The predicted transfer of wealth between generations over the next 10 years could have a notable impact on family offices going forward. As more entrepreneurs exit from their family-run businesses, more cash could be deployed in the global financial markets, the report added. https://lnkd.in/etNUG6ED

Family Offices Boosted Equity, Fixed Income Exposures, Unfazed By Rates, Geopolitics – Citi Private Bank. #castlefamilyoffice #citi The private banking arm of Citigroup publishes its regular temperature check on what family offices around the world are doing in asset allocation. Despite a further delay in US interest rate cuts and greater geopolitical uncertainty, many family offices raised their allocations to fixed income and equities in the second quarter of 2024, while further trimming their cash holdings, a survey by Citi Private Bank, issued late last week, showed.  Within the equities category, family offices tilted towards developed countries’ large-cap stocks. As regions apart from North America saw cuts in allocation to small and mid-cap stocks, exposure to emerging markets equities was down or or flat. Within fixed income sub-asset classes, flows were mixed across all four regions with no clear preference. Allocations to hedge funds rose, while activity in the commodities space was muted, the US private banking group said.  Data was taken from more than 1,200 single family office clients globally. “Many risk assets rallied in the second quarter of 2024, particularly equities. This followed our family office clients’ broad-based additions to equity holdings in the first three months of the year. By contrast, they were more ambivalent about fixed income, which has since done somewhat worse,” Hannes Hofmann, head of the global family offices group, and Shu Zhang, head of the global investment lab, at Citi PB, said in a preamble to the report. The report comes at a time when, as demonstrated two weeks ago when global equity markets tumbled amid worries about stuttering US economic growth, there are concerns whether gains to equities so far this year could run out of steam.  “Equities saw increased allocations in three of four regions on an equal-weighted view. For family offices with large portfolios at Citi Private Bank, allocations rose in every region,” the report said.  Hedge fund allocations went up in every region bar Latin America (equal-weighted basis), while the trend was mixed for family offices with larger portfolios at Citi Private Bank. Private equity saw significantly increased allocations in two regions, with minor retreats in two other regions (equal-weighted basis). There was no clear trend in real estate or commodities between regions,” it continued. “Allocations were flat to positive in all regions bar Latin America on both an equal- and capital-weighted basis. Preferences for fixed income sub-asset classes were mixed across regions.”  https://lnkd.in/ecrHeBKJ

Wealthy investors find opportunities in stock market sell-offs. #castlefamilyoffice Wealth managers say their clients have been reducing their stock holdings for over a year as part of a broader shift from public to private markets. Wealthy investors and family offices shied away from stocks leading up to market swings this week, but many saw the drop in prices as an opportunity for tax savings and estate planning, according to wealth advisors. Private banks and wealth managers say their clients have been reducing their stock holdings for over a year as part of a broader shift from public to private markets in light of recent concerns about an overheated tech sector. According to a UBS family office survey, family offices have 35% of their portfolios in private equity — the largest of any asset class — compared with just 28% in equities. A Deloitte survey found that family office holdings of equities fell from 34% to 25% from 2021 to 2023, while their private equity jumped from 22% in 2021 to 30% in 2023. When stocks tumbled Monday, with the S&P 500 and Nasdaq down 3%, wealthy investors neither panicked nor jumped in to buy, according to several advisors. They did have a lot of questions. “The common question from clients was ‘What’s going on?’” said Sean Apgar, partner and co-head of portfolio and wealth advisory at BBR Partners, which advises ultra-wealthy clients. “It was more out of curiosity; there was no real motive for action.” Apgar said the clients BBR advises — most worth hundreds of millions or billions — don’t react to short-term market events given their long investing horizons. Yet they did want to be educated about the market moves, the Japanese carry trade, the growing recession fears and rate cut odds. For his clients, their investment plan is still their investment plan. “The best thing clients can do right now is sit back and feel good about the investment plan we put in place with them long ago, with expected volatility and corrections along the way,” Apgar said. The drop in prices last Friday and Monday also offered a chance for wealthy investors to take advantage of tax benefits and gift strategies. William Sinclair, head of the financial institutions group and the U.S. family office practice at J.P. Morgan Private Bank, said a growing number of clients have so-called “separately managed accounts,” discreet accounts designed to hold a specific group of assets or stocks. With separate accounts, clients can more easily sell stocks that have declined in value and realize losses they can use to offset capital gains from their winning stocks, known as “tax-loss harvesting.” With some Big Tech stocks down 15% or more over the past month, wealthy investors are selling at a loss, reaping the tax benefits and buying the stock back at a later date to retain their position… https://lnkd.in/eb9VABjD

What does the AI hype mean for family offices? #castlefamilyoffice #ubs While the S&P 500 has hit record highs in 2024, most of the performance has been driven by a select few companies that are investing in artificial intelligence (AI). For instance, NVIDIA, a top investor in the space, accounts for roughly 5.0 p.p. of the S&P’s rally this year—please see: The market rally has been narrow—will this change? As AI continues to become more advanced, family offices can prepare to use it to their advantage. Family offices should be aware of the impact and influence that AI is having on the world. To capitalize on this, our most recent UBS Family Office Quarterly publication highlights how family offices can use AI to help take temporality out of managing portfolios for faster reaction times, while also meeting the scale of signals that need to be processed. AI will also enable family offices to be more efficient with their time by analyzing large amounts of data. Family offices are likely considering whether they should put their own capital toward AI. The UBS Chief Investment Office believes investors can seize the AI opportunity by having long-term exposure to the sector, investing in the enabling layer, positioning in megacaps, and broadening their focus outside of the U.S. to international companies that will also benefit from AI. To breakdown the AI value chain, CIO has identified three layers: enabling, intelligence, and application. While AI can be intimidating, as many unknowns still exist, family offices can implement it into their business practices to stay competitive. The UBS Family Office Quarterly discusses using AI selectivity according to specific needs and workflows. Using selective implementation will help family offices address security risks, identify where to implement AI for the most positive impact, and recognize which processes tend to disrupt the workflow of the business. At a glance While AI can be intimidating as many unknowns still exist, family offices can implement it into their business practices to stay competitive. The UBS Family Office Quarterly discusses using AI selectivity according to specific needs and workflows. Using selective implementation will help family offices address security risks, identify where to implement AI for the most positive impact, and recognize which processes tend to disrupt the workflow of the business. https://lnkd.in/e-DbqQzk