Financial risks from geopolitical turmoil, private markets, also top of mind
TORONTO/NEW YORK (September 25, 2024) – North American family offices overwhelmingly believe the transfer of wealth is set to accelerate over the next decade. Economic uncertainty and geopolitical tensions, along with greater exposure to private markets are also paramount, according to findings from the 2024 North American Family Office Report by RBC and Campden.
There is growing concern over how they will pass on their wealth and family legacy to the next generation. Although 80% view their family office as effective at the intergenerational transfer of wealth, only 53% have a succession plan in place – and of those, only 30% have a formal, written plan.
There are also mixed feelings about whether the next generation is ready to take the reins. About 54% of respondents said the next generation is inadequately qualified to takeover and 42% feel they are too young to assume immediate leadership roles.
“Alongside the families they support, North American family offices are navigating various real-world complexities and the wealth transfer on the horizon with a cautious yet optimistic outlook,” said Manju Jessa, Vice President & Head of Family Office and Strategic Clients for RBC’s Enterprise Strategic Client Group. “Based on our findings, it is clear they are adept and balance the immediate needs of today with their long-term objectives. They remain well positioned to not only preserve their wealth across generations but also capitalize on emerging opportunities in a rapidly changing world.”
“These results highlight a key challenge we see not only for family offices, but ultra-high-net-worth clients in general when it comes to wealth transfer. It really boils down to trust, communication and planning,” said Angie O’Leary, Head of Wealth Planning at RBC Wealth Management – U.S. “Having conversations early and often, along with a solid succession plan, are key to preparing the next generation to preserve their family’s wealth and legacy.”
The survey shows the leading priority for family offices is investment management. More than 40% of respondents are expecting an investment return in excess of 10% this year, exceeding the 9% that was estimated for 2023 and the 1% achieved in 2022.
Only 16% of survey respondents believe the “Magnificent Seven” will continue to be rewarding investments. Sectors that are drawing the interest of the family offices who participated are cybersecurity and semiconductors, among others.
Concerns over the Federal Reserve’s delay in rate easing remained at the time of the survey, compounded by the U.S. election and global conflicts, but few are foreseeing a global market sell-off. Over the medium term, the risks are perceived to revolve around China’s relationship with the U.S. and its real estate market.
“In a world defined by geopolitical and economic uncertainty, family offices have consistently adapted to new realities. There are signs of optimism. For a start, 2024 has shown positive signs of recovery. Inflation in the U.S. is moderating, and GDP growth is aligning with long-term trends. Challenges, however, remain, particularly within venture capital, and certain commercial real estate sectors,” said Adam Ratner, Director of Research, Campden Wealth.
The trend towards private markets keeps pace with past years’ surveys and is expected to increase.
Private market investments, particularly those in private equity and private credit, continue to be the largest-held asset class for North American family offices. This builds on trends of recent years, with average portfolio share up 1% from the year prior to 30% for private markets.
Family offices surveyed say they still have high expectations for private equity and venture capital, despite recent disappointing outcomes and liquidity problems caused by reduced exit activity. Looking ahead, 39% of family offices intend to increase their private credit position, 25% plan to increase their private equity fund allocation and 33% plan to bolster their investments in direct private equity, according to the survey.
Real estate is the third largest asset class for family offices and more than 90% of the real estate owned is in North America. Residential is the most popular sector for family offices (81%) but around half the family offices involved with real estate have some exposure to industrial, office or retail.
As segments of U.S. commercial real estate continue to be problematic, more family offices anticipate pulling back on those investments. Last year, more than 70% of family offices believed repurposing and redeveloping properties would provide attractive investment opportunities and material declines in commercial property valuations would represent a buying opportunity. Today, the figures are down to 57% and 32% respectively.
The lines between responsible investing and philanthropy are increasingly blurred as many family offices view them as opportunities to give back to society, put family values into action and engage the next generation.
“We find that families often have a harder time transferring family values than family wealth. Getting the next generations involved in the mission of the family’s philanthropic impact is a great way to bridge the gap,” said Bill Ringham, Director of Private Wealth Strategies at RBC Wealth Management–U.S.
A substantial portion of family offices integrate responsible investing practices into their broader investment strategies. Among those that have embraced the practice, 41% of their portfolios are comprised of responsible investments, up from 36% in 2023. These family offices believe that the percentages of their portfolios given over to responsible investing will steadily increase to around 50% over the next five years.
Responsible investing is more entwined with environmental concerns. The most popular themes supported by responsible investors are renewable energy (73%), climate solutions (60%) and social equality (59%)
For 68%, a key motivator for responsible investing is the desire to demonstrate family wealth can be invested for positive outcomes. This points to a genuine interest in responsible investing rather than just attempting to reflect the wishes of the next generation (26%).
Three-quarters of North American family offices make philanthropic donations. The majority of donations are in excess of US $1 million and a limited number of large donations pushes the average up to US $10 million.
Families’ desire to give back to society is the principal motivation for their philanthropic efforts (83%), along with supporting causes they have some personal connection (77%). Philanthropy is also seen as an opportunity to put family values into action (56%) and engage the next generation (50%).
The top philanthropic causes that family offices support are education (69%), community development (50%), the arts (48%) and healthcare (46%).
“What’s clear from our research is that while the investment landscape remains complex, family offices are showing resilience and foresight. The data highlights how they continue to navigate volatility, leveraging economies of scale, and adopting new technologies to optimize performance,” added Campden’s Ratner.
About the 2024 ReportAll results noted above can be found within The North America Family Office Report 2024.
The data for this series was collected between March and June 2024. This data includes a survey that was completed by 360 family offices worldwide, with 183 (51%) being from North America. Single and private, not commercial, multi-family offices were included in the analysis this year. The report defines multi-family offices as entities that serve no more than eight families and whose core family holds at least 50% of the family office’s total AUM.
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About RBC Wealth Management – U.S.Founded in 1909, RBC Wealth Management delivers trusted advice and world-class wealth solutions to individuals, families and institutions. A subsidiary of Royal Bank of Canada (RBC), it is one of the largest full-service wealth management firms in the U.S., supporting the complex needs of high-net-worth and institutional clients by providing access to private banking, credit, investment management, asset management and other services. In the United States, RBC Wealth Management had $619 billion in total client assets (as of July 31, 2024) with more than 2,100 financial advisors operating from 191 locations in 42 states. RBC Wealth Management, a division of RBC Capital Markets, LLC, registered investment adviser and Member NYSE/FINRA/SIPC. Learn more at rbcwm.com.
About Campden WealthCampden Wealth is a family-owned, global membership organization providing education, connectivity, research and networking opportunities to families of significant wealth, supporting their critical decisions, helping to achieve enduring success for their enterprises and family offices, and preserving their family legacy.
Campden Research supplies market insight on key sector issues for its client community and their advisers and suppliers. Through in-depth studies and comprehensive methodologies, Campden Research provides unique proprietary data and analysis based on primary sources.
Campden Wealth owns the Campden Club, a private, qualified and invitation-only members club representing multi-generational business owning families, family offices and private investors across 39 countries, and the Institute for Private Investors (IPI), the pre-eminent membership network for private investors in North America. Campden further enhanced its international reach with the establishment of Campden Family Connect PVT. Ltd., a joint venture with the Patni family in Mumbai in 2015.
For more information: www.campdenwealth.com
Enquiries: research@campdenwealth.com
Media contacts:
Adam Ratner, Campden Wealth, +44 (0) 203 325 9674, adamratner@campdenwealth.com
Nathaniel Wallace, RBC Wealth Management Canada, nathaniel.wallace@rbc.com
Megan Boldt, RBC Wealth Management–U.S., megan.boldt@rbc.com
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