Family offices are quietly emerging as major players in the financial world, and they’re set to surpass hedge funds in asset management, marking a major shift in how private wealth is controlled. Deloitte Private estimates that the number of single-family offices, which handle investments for families of at least $100 million, will grow from 8,000 in 2019 to over 10,700 by 2030. By then, they will control more than $5.4 trillion of assets, more than hedge funds that are expected to reach $5 trillion as per Research & Market.
The rise in the prominence of family offices reflects increasing wealth inequality, particularly at the top levels of society. As the world’s richest individuals seek more autonomy and control over their financial affairs, family offices have emerged as a preferred structure for managing their wealth. with the increase in wealth inequality in society, especially at the apex. The rich of the world are demanding more autonomy and discretion in their financial affairs, which has led to the rise of family offices. While traditional wealth management firms and private banks cannot provide the level of personalized service that family offices can, the trend is that more and more wealthy families are setting up their own offices.
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Explosive Growth in Wealth and Family Offices
According to Deloitte, family offices worldwide are expected to manage $9.5 trillion in wealth by 2030, an increase of $4.7 trillion over the next decade. For instance, from 2019 to 2023, assets under management in family offices increased from $3.1 trillion to $5.4 trillion. The main source of this growth is the rise of the upper class, especially the new tech billionaires and global business tycoons.
The number of Americans with wealth of $30 million and above increased by 7.5% in 2023 to 90,700 people with a total wealth of $7.4 trillion, as reported by Capgemini. Also, the number of centa-millionaires with assets of $100 million or more has risen more than twice in the last two decades and has crossed 28,000 worldwide. Today, there are 2,700 billionaires globally, significantly higher than the number of billionaires in 2010.
Why Family Offices Are Growing So Quickly
Family offices have emerged as the preferred choice of Ultra-High-Net-Worth individuals because they provide a high level of control over their financial affairs. High-net-worth individuals are growing more skeptical about conventional wealth management paradigms, which may present inherent conflicts of interest, especially after the global financial crisis in 2008. Almost all private banks and wealth management organizations have quotas and bonuses that force them to sell specific products to the family.
Family offices provide highly customized services tailored to meet the unique needs of each family they serve. Unlike many other investment firms, family offices offer a comprehensive approach that spans investment management, estate planning, tax strategy, philanthropy, and intergenerational wealth planning. According to Rebecca Gooch, Global Head of Insights for Deloitte Private, wealthy families often seek a dedicated team that can manage not only their investments but also various aspects of their lives, ensuring personalized attention and seamless service delivery.
Investment Strategies: Moving Toward Alternatives
Family offices are increasingly moving away from the traditional approach of focusing solely on stocks and bonds, opting instead to invest in alternative assets. Around 46% of their portfolios are dedicated to these alternatives, with private equity making up 19%. This trend reflects a strategic focus on achieving higher returns and spreading risk more effectively.
Moreover, there is a growing preference for direct investments, where family offices invest directly in companies rather than through funds. According to a BNY Wealth survey, 62% of family offices completed at least six direct investments in the past year, and 71% plan to do the same this year. This approach allows them to hold long-term interests in private companies, often teaming up with private equity or venture capital firms for larger investments.
The North American and Asia-Pacific Family Office Surge
The number of family offices is growing rapidly globally, with North America taking a leading role. North America had about 3,180 single-family offices, forecasted to increase to 4,190 by 2030. The assets these offices manage are also expected to rise from $2.4 trillion to $4 trillion during the same period. By this decade’s end, North America will likely house nearly 40% of the world’s family offices.
Asia-Pacific is another region experiencing substantial growth in family offices. The region is expected to see an increase in family offices from 2,290 in 2019 to 3,200 by 2030, fueled by new wealth generated in the technology and entrepreneurial sectors. The total wealth managed by family offices in Asia-Pacific is predicted to rise by 208% between 2019 and 2030, reaching $2 trillion by 2030. This significant growth in family wealth highlights the region’s increasing importance in the global family office landscape.
The Evolution of Family Offices: Institutionalization
Historically, family offices operated as smaller, informal entities, but they are now evolving into more structured organizations. On average, a family office manages around $2 billion in assets, supported by a team of about 15 employees, reflecting a more professional approach.
As their responsibilities expand—often managing the wealth and affairs of multiple family branches across countries—family offices are increasingly adopting corporate structures. This shift towards a more formal model ensures greater stability and efficient management.
To handle these growing demands, many family offices are expanding their teams. A 2015 Deloitte study revealed that 40% of family offices planned to hire additional staff. Additionally, 34% of family offices reported plans to outsource key functions like tax planning, legal services, and technology support, allowing them to focus on broadening their service offerings while managing costs effectively.
Women and the Next Generation: A New Leadership Focus
The next decade will see many family offices undertake major succession processes. The great wealth transfer is anticipated to move trillions of dollars to the next generation. The average age of a family office principal is 68, and 40% of family offices are likely to experience a leadership change in the next decade. Notably, the number of women involved in this sector has increased recently. While they represent only 10% of the global population of ultra-high-net-worth individuals, women manage 15% of all family offices. This implies that women are slightly more inclined to manage family offices, especially at the critical stages in their life cycle, like retirement and succession planning.
The Future of Family Offices
Family offices are poised to surpass hedge funds in the amount of assets they manage. They are likely to become even more significant in the future. By 2030, these private entities are expected to have $5.4 trillion in assets, ensuring their continued relevance in managing the fortunes of the world’s wealthiest families. From private equity investments to direct deals, family offices are emerging as a significant source of capital for private markets, providing long-term, patient capital. With the growing number of family offices, large financial institutions such as Goldman Sachs, J.P. Morgan, and Blackstone have started forming dedicated desks to cater to this sector.
Family offices are also evolving, becoming more organzied and outsourcing key functions to better manage the complexities of modern wealth. As they prepare for the next generation of wealth management, leadership transitions will play a crucial role. Nearly 40% of family offices are expected to undergo leadership changes in the next decade, with women now managing 15% of these entities. This shift points to a broader trend of diversity and adaptability within family offices.
For financial service providers, the rise of family offices represents a growing market. Those who can provide solutions and develop long-term partnerships with such private entities will be the winners of the family office revolution that is already underway and will define the future of the financial industry.
References
- https://www.deloitte.com/global/en/about/press-room/global-edition-explores-the-rapid-expansion-family-offices-and-ffers-vision-of-the-future-landscape.html
- https://www.mckinsey.com/industries/financial-services/our-insights/asia-pacifics-family-office-boom-opportunity-knocks
- https://www.cnbc.com/2024/09/05/family-offices-hedge-funds-5-trillion-assets.html
- https://www.capgemini.com/insights/research-library/world-wealth-report/#:~:text=World%20Wealth%20Report%202024:%20HNWI%20Wealth%20Management%20%7C%20Capgemini