Family offices helped hoist the ultra-wealthy's money to record highs last year. They are ill-equipped to cope with the implications of a handover to a younger generation that looms, a study found.
The financial servants of the ultra-wealthy, so-called family offices, returned an average 15.5 percent for their clients last year, nearly double of 2016, according to a study by UBS and Campden Wealth Research.
Experts surveyed 311 family offices worldwide, managing an average of $808 million in funds. The favorable performance last year was due largely to bull markets, but family offices are also taking more risks, for example by investing in private market vehicles, according to Sara Ferrari, head of the Swiss bank's family office practice.
No Family Office Concepts
Beyond the favorable showing last year, family offices face huge hurdles over how the current generation will pass on wealth to their sons and daughters (roughly 70 percent expect a handover in the next 15 years).
Only about half of family offices have developed concepts of how to approach inheritance and in particular how the emerging generation of millennials may differ in their thinking and financial decisions, according to the study.
The topic isn't new: UBS and Campden Wealth already warned of the gap last year. The deficit has also marginally improved in the past 12 months, the two said.
Demanding Millennials
The emerging generation of 18- to 37-year-olds has a far stronger affinity for impact and other investments which they view as more sustainable than traditional investments. This has massive implications for banks and asset managers, but more so for family offices – the first port of call for wealthy families.
Nearly half of the specialist boutiques said they plan to lift their investments in sustainable vehicles in the coming year. Forty percent of family offices predict that the next generation will put more towards impact and sustainable investments as soon as they have taken over control of their family's wealth.
