Family offices globally have been institutionalizing their investment management processes in recent years, according to a report by J.P. Morgan Private Bank, most notably by assigning separate individuals as CEO and CIO.
In 2016, J.P. Morgan found that just 37 percent of family offices had assigned separate individuals as their chief executive officer and chief investment officer, according to a report co-published with the World Economic Forum at the time. In its latest report, the American bank's private wealth arm found that this figure had soared to 63 percent.
«Most principals note working with a family office CEO, and the importance of the role in setting a clear investment statement and providing institutionalized portfolio oversight,» said the report, titled «Stewardship & Purpose: Conversations with the world’s wealthiest families».
«Additionally, larger families with more complex portfolios often employ multiple CIOs. each focused on specific asset classes or investment types, as well as a CEO charged with providing a critical layer of oversight consistency across the entire portfolio.»
Size Matters
While there are still some families that do not work with even a family office CEO, they tend to be smaller in size with the original wealth creator often acting in the role and sometimes as a CIO as well.
«This is even more common when the wealth creator’s background is in investment management. In many of these cases, the wealth creators often focus on the specific types of investing they did professionally,» the report explained.
Active Management
Despite headline moves towards passive investing, there is a «clear preference» amongst family offices for active management as the desire for alpha generation outweighs concerns about fees.
The vast majority of respondents (52 percent) allocated less than 10 percent to passive or index strategies which were primarily used for highly liquid public equity markets.
Investment Preferences
In terms of asset classes, interest in private investments has surged in recent years. According to the report, 50 percent of family offices dedicated half or more of their allocations to the asset class, including 20 percent who allocated at least 75 percent.
And by sectors, family offices’ venture capital and equity growth investments were mostly focused on technology (54 percent) including biotech, followed by healthcare (30 percent), real estate (25 percent), an opportunistic approach (22 percent) and consumer products (16 percent).
The report was based on conversations with 77 principals across North America, Latin America, Asia Pacific, Europe, the Middle East and Africa, conducted over eight months beginning in December 2021. The principals belong to families with wealth totalling $374 billion and an average net worth of nearly $4.9 billion.
