DISCLAIMER: This post was last modified on 12 December 2022. Some information in this article may not be updated.

An excellent way to guarantee that family wealth is properly managed and handed on to future generations is by establishing a family office, which provides opportunities to increase wealth as well as preserve assets.  

However, these years, family offices are dealing with major concerns such as inflation, rising interest rates, recessionary worries, etc. Your company can reduce the risk and guarantee a successful operation by positioning and planning accordingly.  

Inflation and its effects on the world economy will play a major role in determining the trend for family offices this 2023, impacting the way they invest and perform across the board.   

Breaking down 2023 trends for family offices

Unfavourable Economic Outlook 

In 2022, people had high hopes for economic growth. However, that was before Russia’s invasion of Ukraine rocked the financial markets and U.S. inflation reached a 40-year high.  

According to Rebecca Gooch of Campden Wealth, family offices view inflation, rising interest rates, geopolitical unrest, a big drop in the stock market and China’s slowing economy as the greatest market risks for the year 2023.  

Gooch also states that real estate, commodities and private equity are the main asset classes to keep an eye on in the upcoming year. Private equity is starting to catch up to equities as the most sought-after asset class amongst family offices.  

The Rise of Private Equity  

Compared to the early stages of the pandemic, when returns were mostly driven by public equities, private equity is now at the forefront in the family office space.  

Venture capital investments were the driving force. Private equity investments are fund-based rather than direct, with private equity funds being more common than fund of funds. Private equity is still anticipated to play a part even though family offices are moving toward some moderation, including more balanced investing strategies.  

Inflation-Resistant Investment Strategies 

Reconsidering strategic asset allocations (SAAs) at this point is a good idea. Holding cash and fixed income in this inflationary environment will neither preserve nor produce the returns a family office anticipates.  

According to William Sels, the Global Chief Investment Officer of Private Banking and Wealth Management at HSBC, a diversified portfolio containing a mix of real assets like equities, gold and real estate is a good long-term protection against inflation.  

In addition, he suggests that family offices can match returns with drivers of inflation by investing outside of their main portfolio. For instance, they might consider investing in the development of automation or in reputable businesses with high margins. 

New Normal is Hybrid Work 

Although the COVID-19 pandemic is still ongoing, vaccinations and improved treatment options have enabled some people to resume some sense of normality in their life. People are going back to the office, but not in the same way they did before the pandemic.  

Offering a flexible work schedule in this era is no longer just a strategy to differentiate your company from competitors; it is also a requirement to meet industry standards. Nevertheless, developing trust and relationships is still a crucial component of managing a family office. Thus, regular in-person meetings will suffice at the very least.  

Interest and Uncertainty in Cryptocurrency  

There are now valid concerns about the sustainability of Bitcoin and other cryptocurrencies following the collapse of FTX.  

Although many family offices are eager to participate in many asset classes, doing so can be risky, especially because wealth preservation is a key objective of family offices. Family offices should only invest a small percentage of their assets in cryptocurrencies if maintaining their wealth is their primary objective and taking the FTX fall into account. 

ESG and Sustainable Investing are on the rise 

When it comes to addressing environmental challenges, family offices understand that depending just on government action is insufficient and that their resources can make a difference when they choose to invest responsibly.  

A report by Campden Wealth showed that family offices allocated an average of 16 per cent of their portfolios to sustainable investing in 2020. This figure increased to 20 per cent in 2022. That number is anticipated to reach 31 per cent in five years.  

The younger generation is playing a bigger role in operating the family office as the older generation retires, which is contributing to the rise in sustainable investing.  

Poor Succession Planning  

Gooch also claims that the lack of sufficient succession plans amongst many families could result in the third-generation curse, which is the belief that most families lose their wealth by the third generation. The inability of the next generation members to take over is what forces families to prioritise succession planning and future-generation training.  

Advancement of Family Office Technology  

Technology adoption has been slow in the private wealth sector. Family offices should consider how they have been dependent on local servers and computers, or if remote access to office desktop computers and software is required when employees work from home.  

Remote connection problems and technical troubleshooting will reduce productivity but moving to secure, cloud-based applications can address these issues. Real-time data updates are another benefit of switching to new cloud-based technology. Family offices will get the information they need to make wise decisions more quickly.  

Additionally, McKinsey claims that businesses that become digital industry leaders enjoy faster revenue growth and higher productivity than their less-digitalized competitors. 

The Rise of Family Office and Digital Asset Integration in Asia 

In contrast to North America and Europe, where family offices are well-established, Asia has just recently seen a boom in the number of family offices, which is in line with Asia’s remarkable economic development. Over the past two decades, families in Asia have amassed wealth more quickly than in any other region of the world. Further, this development calls for dependable wealth management and family office services in Asia.  

According to a Knight Frank report from 2020, China witnessed the highest growth in the number of ultra-high-net-worth (UHNW) individuals (9,594 more UHNWIs), followed by the US (6,080) and Japan (1,199).  

The most recent report from Knight Frank projects that in the next few years up to 2025, the number of UHNWIs in Asia-Pacific will increase by 33 per cent. Indonesia and India will take the lead in the anticipated increase of UHNWIs to 168,567 in the Asia-Pacific region, with China Mainland trailing behind. Over the same period, the number of billionaires in Asia-Pacific is expected to increase by 46 per cent and 37 per cent for millionaires.  

On the other hand, Southeast Asia is experiencing a surge in demand for digital asset investments, fueled by favourable regulatory frameworks. The region has experienced widespread adoption of digital assets, from the explosive growth of play-to-earn blockchain games to central bank digital currencies. Institutional investors in the region are now seriously considering the world of digital assets. Likewise, newly established digital assets are proving to be an alluring new diversification play for UHNWIs, giving access to new investable assets.  

Conclusion 

The economy is under pressure and inflation is a big topic that will affect many of the family office trends in 2023 and into the following year. The current environment has led to various innovations, including adjustments in investment strategies, a rise in social consciousness and increased use of technology.  

In general, wealthy families will continue to find the family office structure to be a viable and attractive means to build and protect wealth and assets for future generations. Although there are some challenges, working with a trusted professional partner that offers the best family office services can make things bearable.  

Bolder family office services  

We understand the administrative demands involved in managing private investment vehicles and funds. Our platform enables us to control administration, accounting, invoice payment and the monitoring of expenditures and budgets. When it comes to complex subjects like governance, private equity structuring and succession planning, Bolder provides expert advice to individuals, families and family offices.  

Bolder Group provides multi-family services by offering complete administrative assistance to global families. We tailor our family office services to you and your needs, as we do with all our client relationships.  

Our offices in Singapore and Hong Kong can assist in ensuring everything is aligned with the family’s vision for the management of its financial assets and affairs.  

Setting up your own family office in Asia? Get in touch with our team today!  

Bolder Group does not provide financial, tax or legal advice and the information contained herein is meant for general information purposes only. We strongly recommend that before acting on any of the information contained herein, readers should consult with their professional advisers. The Bolder Group accepts no liability for any errors or omissions in the information, or the consequences resulting from any action taken by a reader based on the information provided herein.

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