Globally Speaking News | July 1, 2021

Family offices in a post-pandemic world

Over the last ten years, family offices have become an increasingly common way for families with significant wealth to use a traditional business structure (“the family office”) to centralise and manage the family’s assets, employing staff to advise on investments, tax, trusts, succession planning, philanthropic activities and other legal matters.

The Covid-19 pandemic has proved a challenging time for family offices – from volatile investment performance, threats to the future of underlying businesses as trade pivoted online to survive, the direct impact of Covid-19 on family members, and the desire for families to put their personal affairs in order or revisit existing estate planning.

During the initial stages of the pandemic, many family offices went into “crisis mode”, needing to take steps to preserve family wealth and mitigate their capital risks. Investment managers had to look at the makeup of their underlying investments, and if they were in industries mostly greatly affected (such as travel and retail), they had to take steps to stem their potential losses.

The passage of time has bought with it a sense of resilience; that business could be done and that life could continue, albeit remotely. Many families have felt more connected in a virtual world, with many embracing video technology to stay in touch, and a desire to continue to maintain this new found connection.

It is perhaps less surprising against this backdrop that the pandemic has proved to be a catalyst for what has been dubbed the ‘great wealth transfer’ (i.e. the succession of an estimated $68 trillion of wealth from current wealth holders, typically the Baby Boomer generation, to their children, typically millennials (the so-called “next gen”) over the next 20 years). The current generation have had more time to think about the future and the passage of wealth to the next gen and take steps to achieve this.

The next gen are digital natives, growing up in the age of the internet, and are more likely to possess a moral conscience, driven by increased awareness of social inequality and the need for environmental sustainability. For family offices this has required them to increasingly look to the next gen to drive forward businesses by embracing technology, a greater focus on the social and environmental impact of investments and investing in crypto-assets.

As governments around the world continue to grapple with the financial fallout from the pandemic, the spotlight has been firmly placed on the wealthy. Raising tax will, of course, go some way to meeting these costs but big businesses are also rising to the challenge, have shown that they can do their part in other ways through their own corporate social responsibility (CSR), often garnering favour with the general public. Family offices are drawing lessons from this either through their underlying businesses demonstrating their commitment to CSR or developing good press around their philanthropic endeavours.

In a post-pandemic world, harmonising family values, embracing technology, building a reputation, and repurposing wealth has never been more important to family offices.

[1] The American Banking Association