Family Offices Set to Surpass Hedge Funds by 2030
The growth of family offices has been nothing short of extraordinary. By 2030, they’re projected to surpass hedge funds with a staggering $5.4 trillion in assets. For families worth $100 million or more, these in-house investment and service firms provide privacy, customisation, and tailored programmes. This blog explores the rise of family offices and their impact on the financial landscape, offering insights into their projected growth and the broader economic forces driving this surge.
The Rise of Family Offices
A family office is a private wealth management advisory firm that serves ultra-high-net-worth individuals. They are different from traditional wealth management shops as they offer a total outsourced solution to managing the financial and investment side of an affluent individual or family.
According to Deloitte Private, the number of single-family offices is expected to rise from 8,000 today to 10,720 by 2030. Their assets are projected to grow even faster, from $3.1 trillion to $5.4 trillion. This rapid growth is fuelled by increasing wealth concentration and a revolution in wealth management.
This explosion is driven by two significant factors. Firstly, wealth is growing fastest at the top, with technology and globalisation creating winner-take-all markets and outsized rewards for tech entrepreneurs. Secondly, ultra-wealthy families are changing how they manage their investments, opting for family offices over traditional private banks for greater privacy and customisation.
Benefits of Family Offices
Privacy and Customisation
One of the main attractions of family offices is the level of privacy they offer. Unlike traditional wealth management firms, family offices are not incentivised by the need to sell products. Instead, they represent the family’s best interests, offering more tailored programmes for the next generation.
Long-term Goals
Family offices are designed to manage the family’s wealth for generations. They offer services beyond simple investment management, including estate planning, tax services, and philanthropic activities. This holistic approach ensures that the family’s long-term goals are met.
Dedicated Teams
Families prefer having a team entirely dedicated to them, available 24/7. This dedicated team manages all aspects of their financial lives, from investing to daily operations, providing a level of service unmatched by traditional wealth management firms.
Economic Forces Driving Growth
Wealth is increasingly concentrated at the top of the pyramid. According to CapGemini, the number of Americans worth $30 million or more grew by 7.5% in 2023, reaching 90,700 individuals with a combined wealth of $7.4 trillion. This concentration of wealth is a significant driver of the growth in family offices.
The ultra-wealthy are shifting away from traditional 60-40 stock and bond portfolios. Today, family offices are increasingly investing in alternative assets like private equity, venture capital, real estate, and private credit. This shift is transforming family offices into boutique investment firms.
Family Office Regional Trends
North America
North America is leading the family office revolution. Family office wealth in the region is expected to grow by 258% between 2019 and 2030. The number of single-family offices is projected to rise from 3,180 today to 4,190 by 2030, accounting for about 40% of the world’s total.
Asia-Pacific
The Asia-Pacific region is also experiencing significant growth. The number of family offices in the region is expected to grow from 2,290 today to 3,200 by 2030. This growth is driven by increasing wealth concentration and the rising number of ultra-wealthy individuals in the region.
Europe and Other Regions
While North America and Asia-Pacific are leading the charge, Europe and other regions are not far behind. The growth in family offices is a global phenomenon, with increasing wealth concentration and changing investment strategies driving growth worldwide.
The Future of Family Offices
Family offices are becoming more institutionalised, with professional management, governance, and technology playing a more significant role. More than a quarter of family offices now have multiple branches serving different parts of the family, often in other countries.
With a significant wealth transfer expected in the coming years, succession planning is becoming increasingly important. The average age of family office principals is 68 years old, and many family offices will go through a succession process in the next decade.
Women are playing a more significant role in family offices. While they represent 10% of wealth holders for those with $100 million or more, they control 15% of the world’s family offices. This trend is expected to continue, with more women taking on leadership roles in family offices.
The Impact on Wall Street
The growth of family offices has sparked a feeding frenzy on Wall Street. Traditional wealth management firms and private banks are launching new family office teams to target this growing market. Accounting firms, tax attorneys, consulting firms, and tech companies are also waking up to the power of family offices.
Technology is playing a crucial role in the evolution of family offices. Advanced software solutions are helping family offices manage their growing assets and responsibilities more efficiently. This trend towards digital transformation is expected to continue.
Family offices are increasingly investing in alternative assets. According to the J.P. Morgan Private Bank Global Family Office Report, 46% of their total portfolio is now in alternative investments, with the largest amount in private equity.
The rise of family offices is reshaping the financial landscape, offering ultra-wealthy families a level of privacy, customisation, and dedicated service that traditional wealth management firms cannot match. With assets projected to surpass hedge funds by 2030, family offices are set to become a dominant force in the world of finance.
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