HollywoodFO - Hollywood Family Office

Family offices have the lowest (7%) allocations to fixed income, on average, with 59% of those holding fixed income saying they do so to benefit from high yields. Their portfolios have the highest tilt allocated towards North America (82%) and just 8% towards Western Europe on average. In the US, high-quality short duration fixed income is the most popular means of diversification (47%). 83% of US family offices state they are likely to invest in AI. In the next 12 months, the top concern among US family offices is a major geopolitical conflict (57%). Over the next five years, US family offices are most concerned about higher taxes (73%). Compared to their global peers, Latin American family offices have the highest allocations, on average, to fixed income (27% in developed market bonds, 7% in emerging market bonds). Those that hold fixed income investments mainly do so to preserve capital (63%), help balance risk (58%) and benefit from the high yields (54%). The cash holdings are the lowest, on average, in Latin America (5%). In the next 12 months, the top concern is inflation (60%), while over the next five years, it is climate change (48%) and technological disruptions affecting their operating business and/or investments (48%).

While economies appear to be stabilizing, geopolitics emerges as the top concern for family offices, followed by climate change in the medium term. Over 12 months, 58% are worried about the possibility of a major geopolitical conflict. There also appear to be concerns that central banks may only be able to cut interest rates slowly, with 37% of family offices stating they have concerns about higher interest rates and 39% about higher inflation. When asked to look further forward over five years, longer-term worries come into sharper focus. While geopolitical conflict remains the top concern (62%), almost half (49%) are worried about climate change and nearly as many (48%) are concerned about a debt crisis at a time when Western countries are burdened by high levels of public debt that might appear unsustainable. While economies appear to be stabilizing, geopolitics emerges as the top concern for family offices, followed by climate change in the medium term. Over 12 months, 58% are worried about the possibility of a major geopolitical conflict. There also appear to be concerns that central banks may only be able to cut interest rates slowly, with 37% of family offices stating they have concerns about higher interest rates and 39% about higher inflation. When asked to look further forward over five years, longer-term worries come into sharper focus. While geopolitical conflict remains the top concern (62%), almost half (49%) are worried about climate change and nearly as many (48%) are concerned about a debt crisis at a time when Western countries are burdened by high levels of public debt that might appear unsustainable.

Professionals operating in the global financial services markets are often attracted by the increasing opportunities around the globe to work with family offices – a trend that is likely to develop substantially. One of the key reasons for this trend is the challenge of inter-generational asset transfer, as families wish to manage their wealth within a more formal corporate structure. Typically, as a family expands, there is a risk that its capital will quickly be diluted unless a sensible wealth preservation strategy and governance structure is put in place. The majority of new family offices are being set up in Saudi Arabia, where both industrial and sovereign families are realizing the necessity of ensuring that a strong framework exists to secure the family’s prosperity for future generations. In these families, a significant concentration of assets – 80% to 95% – is linked to the primary family business, and must therefore be attended to. Family offices carry out a range of business activities, enabling them to expand their service provision within a very wide scope, including investments, procurement services, fund selection and asset allocation. However, a family office must adjust its operations and structure based on its clients’ expectations and realities. The family office must be large enough to tackle the complexity of the managed assets, while ensuring the diversification of portfolios in order to manage the risks and costs associated with operating the entity itself. The best advisors do not sell their services cheaply!

It is observed that 68% of family offices have allocated funds to venture capital, reflecting a keen interest in fostering innovation and contributing to the entrepreneurial ecosystem. Amidst these encouraging trends, it is noteworthy that 72% of the surveyed family offices expressed concerns about cybersecurity threats, emphasising the emerging challenges in safeguarding digital assets and sensitive information. Additionally, considering the family office leadership, the report highlights that approximately 58% of North American family offices are led by the first-generation wealth creators, signifying a generational shift in wealth management and strategic decision-making. The North America Family Office Report 2023 underscores a landscape of remarkable resilience, robust growth, and a steadfast commitment to responsible investing. With $1.72 trillion in assets under management, a strong focus on impact investing, and a notable generational shift, North American family offices continue to navigate tumultuous times with unwavering determination and success.

Statistic On The Global Family Office Boom - As per the report from the Economist Intelligence Unit and DBS Private Bank, these are some key relevant stats demonstrating the growth proclivity of family offices: Global Family Office Population: We estimate that there are more than 10,000 single-family offices (SFOs) and 5,000 multi-family offices (MFOs) worldwide. Wealth Managed: Family offices collectively manage around $5.9 trillion in assets, indicating a substantial concentration of wealth in these institutions. Growth Rate: The family office sector has been increasing at a rapid pace, with the number of family offices nearly doubling between 2008 and 2018. Asia-Pacific Region: The growth of family offices is particularly pronounced in the Asia-Pacific region, with the number of family offices in the region increasing by 44% between 2017 and 2019. Investment Strategies: More than 60% of family offices have increased their exposure to private equity, and around 50% have augmented their investments in hedge funds. Impact of Technology: Approximately 70% of family offices are leveraging technology to enhance their operations and investment decisions. Challenges and Opportunities: 60% of family offices perceive geopolitical developments as a significant risk, while also recognizing the potential for sustainable and impact investing opportunities. As the financial landscape continues to evolve, one prominent trend emerges—the remarkable rise and rise of family offices. These financial powerhouses have been steadily gaining autonomy and influence, gradually transforming the dynamics of the financial market. The evolving role of family offices reflects a broader shift towards alternative sources of wealth management and investment, highlighting their increasing importance in an ever-changing financial world.

Asset allocation trends The average portfolio targets a return of about 11%, and maintains a 45% allocation to alternative investments, including private equity, real estate, venture capital and hedge funds. Family Offices report spending an average of $3.2 million annually to run their family offices, with recruiting and retaining talent a primary focus. Succession planning, family governance and preparing the rising generation are priorities for family offices. But many are falling behind in tackling these difficult, yet unavoidable, issues.

Family offices have long been a quiet force in the world of active management, but in recent years, they have ascended to the forefront of financial influence. This transformation has not gone unnoticed, as the traditional financial landscape is reverberating with the impact of family offices. As the number of ultra-high-net-worth families seeking more control over their investments grows, the family office model is undergoing a remarkable evolution. Historically, family offices were tailored to meet the multifaceted needs of ultra-high-net-worth families, encompassing financial management, tax planning, philanthropy, and wealth preservation. These entities operated discreetly, shielding the wealth of affluent families from the public eye. One primary driver has been the immense concentration of wealth among a select group of individuals and families. The accumulation of substantial wealths has necessitated a more sophisticated approach to wealth management -prompting the establishment of family offices to safeguard these assets. Demographic shifts have played a pivotal role in reshaping the family office landscape. As the torch passes from one generation to the next, the preferences and priorities of affluent families have evolved.

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