COVID-19, technological advancements, social problems, and the evolution of values that affect investment plans continue to form patterns for the family office for 2021.
The establishment of a family office is an excellent method of preserving the proper management and distribution of family capital to subsequent generations. In addition to preserving properties, there are ways to increase their income, as some of the very wealthiest did after their viral outbreak.
However, as COVID-19 showed, there will still be risks, the positioning and preparation of your entity, therefore, reduces the risk and guarantees a smooth service.
- The family office investment has been changed by the pandemic. While society has become much more responsive to the epidemic, it has shaped the measures taken by the Family Office. As a result of the epidemic, for instance, 67% reported in April that their portfolio had further diversified into other emerging asset categories.
- 97% of family offices state that their portfolio is diversified through multiple different asset groups. It contains liquid and illiquid investments; 86% also claim.
- Finding the right talent has never been more critical with 78% of the family offices investing directly and through funds.
What drives the theme of the Family Office?
The number of family offices that were founded in recent years to handle the affairs of rich families has grown. In UBS and Campden Wealth’s Global Family Office 2019 study, 68% of the 360 Family Offices surveyed were established in 2000 or later. In the last two decades, growth in the number of family offices has reflected the increase in income worldwide. Phenomena such as the dot com bubble and the growth of technology have strengthened the economy of a billionaire with a wealth holding of US$8,6 trillion amongst 2,604 billionaires and another US$31,5 trillion holding 255,810 individuals worth US$30 million each or more. However, the figures say only a tiny portion of the tale of our experiences.
Here are the key trends for Family Offices for 2021 and after-effects of COVID-19
Global Wealth Rebound
The world’s wealth was retreating at the start of the year. In the first trimester of 2020, total domestic income declined by $17.5 trillion, up from 4.4% in 2019. COVID-19’s arrival has interrupted global growth and caused a financial market collapse, and dented many people’s fortunes, threatening many others’ livelihoods.
However, the markets quickly bounced right back after the crisis. According to Credit Suisse, the world’s household capital, which was between market recovery and government stimulus, stood at $400 trillion for the first time.
While at the start of 2020, people at the top saw their fortunes fall, they were among the greatest winners ever. The 500 richest people together saw a rise of $813 billion in net worth. The global economy has begun to rebound, raising the overall prosperity with the progressive introduction of vaccines.
The effect on the income of the pandemic would change the way family offices spend and work, both internally and through society.
Fore frontal Social Issues Bringing Greater Focus on Impact Investing
One of the major influences in 2021 would be to solve social problems as a family office trend.
The pandemic itself revealed the fragility of the global economic system and healthcare services when faced with such disturbances, the lowest wage earners are the worst hit and in need of most support.
A short ‘timeout’ in humans’ activity at the beginning of the lockdowns reduced global pollution significantly, demonstrating not just how much humans have an influence on the planet’s health, but also how powerful people are in protecting the environment.
Although no fast fixes are available, family offices will play a part in pushing things in the right direction. They have the means to achieve positive results. Families with wealth are constantly aware of how their perception affects the community and the environment and the way their finances influence society. As a result, impact investing is becoming a common means of contributing to a better society.
- A third of the family offices are committed to sustainable investing.
- Impact investing takes one-quarter.
According to a survey from Campden Wealth, 26 percent of respondents in families said they want to prove the possibility of investing family wealth for positive outcomes. 24% believed the incorporation of sustainability aspects would lead to higher returns on investment.
These investors expect that one-third and one-fourth of their average investment portfolios will be sustainable and impact investments in the next five years (2019 to 2024) respectively.
Use of Intelligence Artificial
According to a UBS poll, 87% of the interviewed family offices believe that the major transformative factor in global business is artificial intelligence (AI).
AI can execute activities at higher speed and reliability than humans when its attributes are fully accepted. While this could seem “fearful” to others, it’s important to consider how AI can free up time to concentrate on high-value customer interaction.
When forward-looking companies use the new technologies to increase productivity, family offices will follow suit, who want to remain ahead of the curve.
Direct, Private Equity and Hedge Fund Investments
UBS reports that over 80% of family offices are investing in private equity and most of the family offices are investing directly instead of through a hedge fund.
The biggest predictor of returns is that 69% of family offices consider private equity.
The composition of hedge funds’ fees is a prominent explanation for the shift away from hedge funds and moving into private equities.
Having a few arguments for direct investment from family offices:
- More control
- The call for a more practical solution to their investment from entrepreneurial families.
- Less expensive
On average hedge funds account for just 5% of the overall family office shares, compared with 16% for private equity.
While most hedge funds in recent years have been underperformed, 73% of the families surveyed by UBS reported that hedge money was in accordance with or above estimates in 2020.
ROD Family Office’s Conclusion
We conclude that the pandemic introduces a unique norm by modifying or speeding up systemic dynamics, which include a revision of asset allocations by investors. The emerging movement towards deglobalization and the blurring of fiscal and monetary policies would have a durable and substantial effect on economic growth, interest rates, and business fundamentals. This impacts asset values for many years and will continue to do so.
Therefore, this must be tackled not only by tactical changes but within the strategic asset distribution design. We assume that even long-term investors will benefit from updating their strategic asset distribution to ensure that a different macroclimate in the new normal and a greater degree of volatility is considered in future asset class returns.
Despite the apparent pandemic and global recession, many family entities are long-term hopeful.
Family offices would remain a sustainable and attractive way for rich families to build and protect wealth and assets for future generations to come.
