Passing the big buck, it runs in the family

Family offices now manage a sizable slice of global capital with the principal objective of preserving wealth during the biggest intergenerational transfer in history. Their scale and pace of growth are creating an ecosystem, while the institution is adapting to emerging social, ecological and philanthropic needs. Governments are proactive in facilitating this transformation to the advantage of public welfare. Technology is another disruptor, both in terms of how family offices manage themselves, as well as how the money they manage is directed into investments. The investment horizon of family offices complicates the job of deploying capital efficiently. Economic frontiers will have shifted by the time inheritors come into their money.

This blurs the boundary between personal wealth and venture capital-chasing entrepreneurship. The current generation of entrepreneurs is, in effect, using its wealth to seek out the next generation of entrepreneurs. Private equity fulfils this role, but operates in a more regulated environment. Family office assets are set to overtake those of hedge funds. However, they must create an alternative ecosystem that builds a defensive moat. Private wealth, by its nature, is free to operate in the shadows. But it has to emerge into the light if it needs to grow. Naturally, the financial world chases family offices assiduously, which have set out the terms of engagement.

Family offices represent patient capital and can inject an element of stability into private equity. Natural selection is, therefore, driving intergenerational wealth towards alternative investments and newer geographies. More of it will occur once the wealth transitions to the next generation, which will have its own perspectives on investment strategy. Family offices would have strengthened their governance and management by the time a substantial part of the wealth is transferred. This particular mechanism for capital allocation has a lot going for it.