Ongoing volatility in global financial markets, primarily driven by the lingering effects of the Covid-19 pandemic, as well as geopolitical events and sustained turbulence, has intensified market instability. As a result, a growing number of ultra-high net worth (UHNW) families are reassessing their investment strategies, risk management approaches, and portfolio allocations to ensure long-term financial stability for current and future generations.
First conceived in the mid to late 1800s by the Morgan and Rockefeller families to manage, grow, and preserve their wealth, family offices today have an increasingly vital role to play in helping UHNW families navigate this turbulent and complex global financial landscape.
In South Africa, increasing numbers of UHNW families are turning to family offices to reassess their investment strategies, risk management approaches, and portfolio allocations as they look to develop strategies to protect assets and mitigate risks, and ensure the long-term financial stability of the family unit –both current and future generations.
Among the most valuable aspects of family offices is their ability to stay up-to-date on the latest trends. A report by UBS and Campden Wealth Research revealed that 62% of family offices are using Artificial Intelligence (AI) currently, or are planning to at some point in the future. AI has enormous potential to augment their operations in a rapidly changing world. Additionally, there is a growing interest in alternative asset classes like biotech.
In South Africa, UHNW families are also turning to private equity to diversify their investment portfolios, preferring direct investment into Private Equity (PE) opportunities rather than PE-related funds, especially when they want to have control or influence over the business. Family offices play a vital role in identifying suitable PE opportunities by scouting different markets and sectors.
Environmental, Social & Governance (ESG) is another noteworthy asset class that is well-established in the wealth management sector in the USA and Europe. Its adoption is still in the early stages in South Africa, and family offices have the potential to contribute to the acceptance of ESG and promote its application.
Looking to digital assets, the collapse of FTX and the sharp decline in Bitcoin’s price have reinforced skepticism towards crypto assets due to their volatility. Family offices focused on wealth preservation may still con- sider investing in cryptocurrencies too risky. However, crypto assets are now classified as financial products, and regulated by South Africa’s Financial Sector Conduct Authority, which may contribute to increased acceptance of digital assets in the country. By assessing the suitability of crypto assets within the risk parameters and investment strategies of the families they represent, family offices have a key advisory role to play.
In the aftermath of the pandemic, many UHNW families are increasingly motivated to make a difference, whether through direct involvement or indirect means. One notable trend among families operating family offices is their desire to witness tangible impact and engage personally, rather than simply making monetary donations to charitable causes. Philanthropy can manifest in various ways, and the role of family offices in suggesting the most appropriate structures or avenues for engagement remains crucial.
Following local unrest, instability, power outages, and South Africa’s grey-listing by the Financial Action Task Force (FATF), many ultra-wealthy families in South Africa are choosing to externalize their family wealth, primarily to the UK and Europe, as they prepare for potential offshore relocation or formal emigration. The role of family offices is to help families make informed decisions. They also have the expertise to design multi-jurisdictional strategies for wealth and asset distribution, ensuring that legal and tax considerations are thoroughly addressed to minimize potential risks and vulnerabilities.
For family offices, the adoption of hybrid working models has increased willingness to conduct virtual meetings, resulting in shorter response times and improved participation. Conferences and seminars now often offer both in-person and virtual attendance options, allowing family offices to connect with counterparts and service providers more easily. Greater opportunity for participation in local and international events also increases their exposure to global trends.
These trends point to the increasingly-important role financial offices play today and into the future, in preserving wealth, facilitating multigenerational wealth transfer, promoting family governance, and providing strategic guidance. By staying abreast of the latest trends and leveraging their resources, family offices continue to support the long- term success, growth, and legacy of wealthy families around the world.
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