Family Offices Flourished in 2021: Study

Neither the pandemic nor the subsequent hike in inflation, interest rates and geopolitical risks impeded growth in North American family offices’ collective wealth and investment returns in 2021, according to new research from RBC and Campden Wealth.

More than half of the 179 North American family offices surveyed reported strong growth in their assets under management in the year leading up to the economic downturn, collectively estimated at $182 billion. And more than three-quarters of families surveyed saw their wealth rise in 2021 to an average of $2 billion.

The research showed that 66% of North American family offices employ an investment strategy that focuses on wealth preservation or a balanced strategy incorporating wealth preservation and growth. This is up from 63% from the previous year.

Still, a bias toward private equity and real estate continues as a way to mitigate the effects of inflation. According to the report, this trend is likely to persist since 46% of those surveyed said they would increase their allocation to private equity funds and 41% to direct investments in 2023, with 35% planning to allocate more specifically to venture capital. Forty-one percent of family offices plan to allocate more to real estate.

As a result of this strategy, RBC and Campden Wealth said, North American family offices have outperformed their peers with an average portfolio return of 15% in 2021, compared with 13% in Europe, 10% in Asia-Pacific and a 13% global average.

Despite their more conservative investment approach, the research found that North American family offices have reported increased portfolio allocation to these sectors:

• Health care tech: 71%
• Biotech: 62%
• Fintech: 59%
• Digital tech: 52%
• Green tech: 50%

According to Rebecca Gooch, Campden Wealth’s senior director of research, this year’s report tracked family offices’ allocations to the metaverse, NFTs and Web 3.0 for the first time.

Gooch said, “It is fascinating to discover that roughly one-in-four family offices in North America invest in the metaverse, one-in-10 in NFTs and more than a quarter in Web 3.0, and that these are all areas that family offices plan on allocating more to in 2023.”

But even as they wade further into these new asset classes, North American families still consider the old faithful asset classes a vital part of a diversified portfolio, she said.

Next Generation

According to the report, North American family offices increasingly consider sustainable investing important, with 37% now engaging in it and 77% of these focusing in particular on climate change mitigation.

The research suggests that this trend has been driven by younger family members, whose influence continues to grow amid a major generational transition.

Despite next generations’ greater investment sway, however, the report said only 33% of family offices have a succession plan in place for senior leaders, and 40% do not have a next generation member they consider qualified enough to take over.

Nevertheless, the report said an additional 30% of the next-generation cohort were found to have already assumed control of their families’ operations, with another 27% expected to do so within the next decade.