Key Trends in Investments Strategies of Families and Their Family Offices
Wealthy families usually share several characteristics. Their wealth has frequently been built across generations through ownership of one or several private companies. These families tend to have a strong cultural attachment with some specific investing behaviors that are not always shared by shorter-term investors.
Families and their family offices tend to be more comfortable with illiquid assets and with private companies. They are also aware of the need to be able to withstand periodic economic or financial crises and thus deploy investment strategies based on a longer-term horizon, and more balanced in terms of risks.
Another key characteristic seen in families whose wealth has been built over generations tends to be the importance of people and the long-term relationship with managers and executives, based on strong sustained values shared by the family members and which they expect their family offices to respect.
These values and long-term perspective have been one of the key differentiating factors behind the performance of family offices. Over the past decades, family offices have become very sophisticated and are now able to execute and manage transactions that would have been the exclusive remit of large private equity funds or financial institutions in the past.
These highly experienced family offices are able to leverage their unique cultural heritage and their sheer financial strength to adopt complex and rewarding investment strategies fitting their risk appetite and portfolio ambitions. And these strategies are becoming more prevalent in family offices.
For instance, the place of private equity in family office strategies has increased in importance. A recent report from AFFO focused on families’ asset allocation in 2018, highlights this fact, with Private equity representing now 21% of families’ portfolio allocation. A significant part of this reallocation comes from the reduction of exposure to listed equity and hedge funds, while real estate, and other real assets continue to figure strongly in family portfolios.
However, obtaining privileged access to the best private equity opportunities has remained a challenge for all but the largest family offices. This is where wealth managers can really make a difference for their clients, leveraging their relationship and access to ensure clients can take advantage of such investment opportunities. At BNP Paribas Wealth Management for example, clients benefit from our close relationships with some of the best-performing and most-respected private equity managers.
In addition to private equity, the second significant trend is the rise of responsible and impact investments, as families increasingly align their investments with their values. The COP 21 in 2015 marked a turning point in the world’s thinking with regard to major environmental challenges. The finance sector has taken a big step forward. Some of the most important financial institutions and some of the largest banks, but also governments and international organizations like the UN and the World Bank - all confirmed their dedication to tackling climate change and continuing to innovate and promote responsible finance. The mobilisation of investors since then has been tremendous, with most of them having deepened their commitments to fighting climate change.
Families and their family offices have been at the forefront of this change, with the push has been especially strong from the next generation. The main challenge they face is to measure the reality of the impact of potential investment opportunities and to access rare opportunities aligned with their values.