Over the last ten years, it has become increasingly common for families with significant wealth to use a business structure (“the family office”) to centralise and manage the family’s assets, employing staff to advise on investment, 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.
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. However, the passage of time has bought with it a sense of resilience; that business could be done and that life could continue, albeit remotely.
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 next gen are digital natives, growing up in the age of the internet, and are more likely to have an increased awareness of social inequality and environmental sustainability. For family offices this has required them to increasingly look to the next gen to drive forward businesses by embracing technology, focusing 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 have shown that they can do their part through their own corporate social responsibility (CSR). Family offices are drawing lessons from this either through their underlying businesses demonstrating their commitment to CSR or developing a good press around their philanthropic endeavours.
In a post-pandemic world, harmonising family values; embracing technology; building a reputation; and repurposing wealth have never been more important to family offices.
The full version of this article features in our international e-bulletin Globally Speaking which you can read here.