$5.4 trillion. That's more than the U.S. plans to spend in 2024 on Social Security, Medicare and national defense combined. It's also the amount of assets family offices are predicted to have by 2030, surpassing even the growth of hedge funds.
With the growth of assets comes an expansion of horizons in terms of family office trends. This pertains not only to the types of investment vehicles chosen by family offices but also the level of involvement high net worth families and individuals have with those investments.
The 60-40 tradition is passé
Traditionally, a typical family office investment portfolio consisted of about a 60-40 ratio of stocks and bonds. Nothing too unconventional, nothing too risky that would jeopardize the family's wealth.
This is no longer the case. Starting with the past several years, family offices are more than just peppering their portfolios with alternative investments such as private equity, direct deals and real estate – these less-conventional vehicles now account for 45% of total family office portfolios, according to J.P. Morgan Private Bank's 2024 Global Family Office Report.
Celebrities are getting down to business
Just as celebrities often set fashion trends, they're leading the charge on family office trends as well, diving head-first into the alternative investments market.
Kim Kardashian, for example, founded private equity firm Skky Partners in 2022 along with former Carlyle Group executive Jay Sammons. It's by no means her first foray into entrepreneurship. The celebrity also started shapewear brand Skims, which was at one point valued at $3.2 billion, and makeup-turned-skincare line SKKN (formerly KKW).
“The list of celebrities growing their financial portfolio outside of entertainment is endless, and it's only going to keep growing” as they seek opportunities to grow and maintain their wealth, says a Forbes article by Josh Wilson.
Those efforts have resulted in brands such as Jessica Alba’s The Honest Company, Snoop Dogg’s Dr. Bombay ice cream (which he says was inspired by his “best friend,” Martha Stewart), and Casamigos Tequila, which was co-founded by George Clooney and sold in 2017 for $1 billion.
In venturing into venture capital/private equity, Kardashian joins the ranks of actors Leonardo DiCaprio, Gwyneth Paltrow and Ryan Reynolds and tennis superstar Serena Williams.
Family offices are investing outside the box
While Ryan Reynolds asserts that “storytelling” is his main role with the businesses his company invests in, plenty of family offices are founded by people who have spent their careers fully ensconced in the realm of entrepreneurship.
Instead of investing strictly for wealth-maintenance purposes, those entrepreneurs increasingly want to use their investment choices to help fledgling businesses succeed. According to the J.P. Morgan report, 52% of family offices globally allocate to venture capital. This may be, the report says, because it allows them to take a control stake or exert more direct influence over the investment.
Other family office alternative investment trends include private equity, with 86% of global family offices taking part, while 77% allocate to real estate. Hedge funds and private credit also enjoy a level of popularity.
Family offices are gravitating toward alternative investments because they often have a higher risk tolerance than traditional investors, can handle the illiquidity, and are attracted to the potential for higher returns, the J.P. Morgan report notes.
Families are getting back to business
Traditionally, family office investments have been of the passive variety: public equity vehicles such as stocks and bonds, real estate, trusts – even coupling a venture capital stake with an advisory role in a startup could be considered passive compared to some family offices today, which are actively managing income-producing businesses.
The types of businesses run the gamut from investment firms to media companies to agricultural and food companies and more. According to a Deloitte report, family offices spend an average of 15% of their time on operating businesses.
The changing look of family offices
It's not just investment choices that are subject to family office trends. The offices themselves are evolving in multiple ways.
Increased staffing, increased scope
Whereas in past years, family offices ran on a relatively lean staff – maybe five team members handling $500 million in assets – family offices are now becoming more like boutique investment firms, according to a recent CNBC article. This involves larger teams averaging 15 employees along with more structured governance practices.
To that end, 73% of family offices have an established board, according to a recent Deloitte report, the majority of which include professionals with backgrounds in arenas like strategic planning and finance. A third of respondents to the Deloitte survey predict a widespread embrace of operations-based digital technology to go along with that increase in structure.
Along with the professionalization of the family office comes an expansion of the services offered to encompass areas such as legal and tax along with lifestyle management.
Family members and women are increasingly in charge
As the number of people running family offices has changed, so has who those people are.
Almost 70% of respondents to the J.P. Morgan survey cited succession planning and preparing the rising generation as a family office goal. As part of that transition to the new guard, family members are maintaining direct involvement with the family office, with almost 90% of respondents saying the family is closely involved in investment decisions.
Family offices are using investment choices as a way to engage younger family members. Philanthropy is commonly used, especially in U.S.-based family offices, as an entry point toward greater responsibilities, according to the J.P. Morgan report.
Women are taking on more leadership roles in family offices, with 15% of family offices worldwide being led by female principals, according to the Deloitte report. This family office trend is likely to continue as $84 trillion is expected to be transferred from the Silent Generation and Baby Boomers to younger generations and charities between now and 2045.
Stay up to date with modern family office software
As they become increasingly modernized, professionalized and their fund allocations more diversified, family offices need technology that keeps up with the changes.
Whether your family office is independent or embedded within an operating enterprise, whether you have an array of alternative investments or are staying the traditional route of stocks and bonds, Gravity’s family office software has everything you need to keep up with these trends – and to start your own.
Gravity's features include:
- Multi-entity capabilities for managing multiple operating businesses or multi-branch family offices within a single database, including settling intercompany (or inter-family) transactions in minutes and creating real-time consolidated financial reports.
- Robust multi-currency capabilities for family offices with global investments.
- Investment management software so you can track your passive investments alongside your active businesses without the need for a separate solution.
- Physical asset management capabilities to keep track of real estate, art and other alternative investments.
- Best-in-class cyber security practices powered by Microsoft (24% of J.P. Morgan survey respondents reported being exposed to a data breach or financial fraud).
- Personalized dashboards featuring easy-to-understand Microsoft Power BI data visualizations.
- Automated workflows to make approvals seamless.
Get a better grip on your family office finances with Gravity
The merits of Gravity aren't lost on Bruno Pugliessa, who quickly realized after taking on his role as a family office controller that QuickBooks wasn't going to work for the number of inter-family transactions his team needed to keep track of. Logging into and out of dozens of databases to make multiple journal entries for every transaction was taking up a huge amount of time – time that would be much better spent strategizing the future of the trust.
With Gravity, Pugliessa and his team are free from this and several other administrative burdens that were bogging down the team. He found the solution’s fixed asset management – which automatically calculates depreciation – especially valuable, along with Gravity's automated bank book reconciliation, revenue recognition and consolidated reporting features.
Gravity Software has all the features your family office needs to thrive.
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