How the family office became one of the world’s fastest wealth generators

The family office, which handles the investments of the ultra-rich, has become one of the fastest generators of wealth in the world from the US to Hong Kong and Singapore. An institution that dates back more than 150 years — when American financier John Pierpont Morgan first came up with the term to describe the personal investment arm for his growing art collection — has become a cornerstone of the financial system.

Although the industry is diverse, ranging from single-family units with a handful of staff to multi-office groups representing several families and managing hundreds of millions of dollars, it faces a number of risks that could check growth.

First, the vast transfer of wealth to the next generation — estimated by data provider Wealth-X at $18.3tn by 2030 — may prove less than smooth. Some families could suffer from the so-called third generation curse, where money is lost because of infighting and poor decisions, as the founder and wealth creator becomes less involved in the business.

Second, family offices are increasingly investing in riskier private markets in search of higher yields, moving away from the traditional safer approach built around balanced portfolios. According to Citi’s Family Office and Investment Report for the first quarter, there were larger allocations to private equity across all regions.

Third, the world has become a much more dangerous and uncertain place, with wars in the Middle East and Ukraine, and simmering tensions between China and Taiwan. UBS’s Global Family Office Report for 2024 points out that the risk of a significant geopolitical conflict is a big concern for family offices, both in the near and medium term. At two large family office conferences in Singapore and London hosted by Deutsche Bank Private Bank, attendees said geopolitics was the theme most affecting asset allocation decisions. It is clearly a threat that could disrupt markets and upend some portfolios.

Asset managers and advisers admit there are risks, but in the main they still expect the sector to continue growing. They believe family offices will play an increasingly important role in the financial system and create more wealth for their ultra-rich owners, while at the same time boosting the global economy by providing capital and financing for companies and institutions. 

For more information see David Oakley “How the family office became one of the world’s fastest wealth generators” the Financial Times, July 11, 2024.

Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.