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The evolution of family offices: the family capital business of tomorrow is taking shape
Family offices are changing – and fast. From their history as passive protectors of family wealth, they’re morphing into a powerful new force in the investment and deals ecosystem: professionalised, active, direct investors in a widening array of sectors and asset classes. Yet, amid this evolution, they’re retaining the long-term perspective, and societal values and focusing on the impact that differentiates family businesses – deeply embedded attributes that give them an edge in deal making as their role and investment horizons expand.
These were just a few of the messages that came across loud and clear in our recent webcast on the evolution of family offices, featuring new PwC research insights and a high-level debate among a panel of renowned family office experts. The biggest takeaways? That the speed and scope of change mean the term ‘family office’ itself is now too vague to describe them. And that we’re entering the era of ‘family capital’ and ‘family investment firms’ – businesses that are distinct from the family enterprises that spawned them, and which are competing head-to-head for deals with sectors like venture capital, private equity and sovereign wealth funds.
Family investment on the rise
These shifts are fully reflected in PwC’s latest research into how family offices are evolving. Earlier this year, our Family Office Deals Study revealed that family offices were involved in 10% of all deals globally in 2021. Yet for many people, these deeply discreet organisations remain shrouded in mystery. So, we set out to demystify them through a new in-depth analysis of our unique global database of 6,000-plus family offices, zeroing in on how their role and scope are changing over time.
You might find some of our findings surprising. Examples? While the Americas have the largest number of family offices, the median assets under management are highest in Asia Pacific. Well over half of the family offices active today have been set up since the millennium, and three-quarters since 1990. And they’re increasingly active investors in start-ups: in 2021 they backed venture-capital style deals that accounted for over 11% of total start-up investments by volume and a remarkable 43% by value.
The "family office" becomes a "family capital" business
The inescapable conclusion is that the family office has come of age. But what does its new incarnation look like? As our webcast confirms, it’s becoming an increasingly professionalised organisation – effectively another high-performing family business operating alongside the original one, complete with its own governance, mission, vision and talent pool. And combining a professional investment team with the ability to provide a wide range of services to the family, from concierge to transport services, from Next Gen development to technology provision, from regulatory compliance to cyber security, and more.
This growing breadth and scope explain why the historical definition of ‘family office’ is increasingly out of step with today’s reality. And the same applies to the way the sector has been segmented in the past. This has traditionally been carried out based on factors such as whether they were single or multi-family offices. Now there’s a need to expand the categories to include concepts like ‘corporate venture firms’ and ‘principal investment funds’. However, it’s also vital to bear in mind that categorising family offices at all is fraught with difficulties: just as every family is unique, so each family office that serves the differing needs of its various members must be unique as well.
The shift from passive to active investing
Within these broad seismic shifts in the family office landscape, our research, industry experience and everyday client conversations pick out some specific strands of change. One of the most marked is the progression from the passive investment approach that predominated 20 or 30 years ago to a far more active investment strategy today, often involving direct investments. This means competing with other sources of capital – a fight in which family capital investors can gain an edge over their rivals through the higher trust created by their shared family values, purpose and long-term investment horizon.
There’s strong evidence of this advantage at play in the deals market. When a business – especially another family business – is up for sale, family offices tend to approach the deal with a “founder” mentality. Through close alignment with the families who’ve built and then run a successful business themselves, a good family office team understands and values entrepreneurship, the well-being of employees and the importance of operating in a community. All of this makes family offices more attractive to sellers as potential purchasers – and can often enable them to win deals at a lower price than, say, a private equity firm.
The growing importance of impact investing in the family office sector
Moving from passive to active investing also brings benefits to the family itself. If the family office is investing passively, the family members – especially the next generation – get very little utility from looking at numbers on a screen. But as the family office’s investment stance moves to active, the family members’ shared purpose, mission and vision are strengthened and amplified by being able to see their capital delivering positive impact in concrete ways. This in turn reinforces family cohesion – boosting the sustainability of both the family and family enterprise in an increasingly challenging and complex world.
How to create a professionalised, family values-aligned family office team that will deliver these benefits and long-term sustainable value? A panellist on our webcast recommended three steps. First, hire a brilliant admin person to coordinate everything. Second, bring in a great accountant to run the books. Third, define a clear mandate and strategy for the investment team – passive or active, traditional or alternative assets, real estate or start-ups, areas of specialisation, focus areas for impact – and build the team accordingly, aligning pay and incentives with the agreed goals. The biggest challenge may be finding the right talent. But, again, the family office’s purpose and values can help attract the best people, many of whom want an employer who makes a positive difference.
Collaboration for the future: the role of family offices
The outlook for the future? More family offices making more (and more diverse) investments – and creating higher value for their owning families and society as a whole. Peter Englisch, Global Family Business and EMEA Entrepreneurial and Private Business Leader, Partner, PwC Germany sums up: “It’s very clear to me that the trend towards setting up family offices will continue because the needs of wealthy families are unique and require support from a specialised professional team. It’s key that this team is aligned with the family’s values and long-term focus while considering the differing needs of family members and beneficiaries. When this alignment exists, there’s a huge opportunity for families to stay together and invest together – making them much stronger than if each member operated and managed their wealth on their own.”
To learn more, please view our webcast on the evolution of family offices.
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Global Family Business Leader and EMEA Entrepreneurial & Private Business Leader, Partner, PwC Germany
