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A recent market research report highlighted that family offices are placing a greater emphasis on succession planning than ever before. Accelerated by the COVID-19 pandemic, the transition is seeing younger generations acquiring more responsibility in their family businesses; over the next 10 years, 44% of family offices are preparing for an inter-generational wealth transfer. This wealth transfer is estimated to see $84 trillion transferred to the next generation and will see a generation increasingly interested in sustainability and philanthropy take leadership positions in their family office.
Aeon Investments published a study that involved interviewing 100 senior investment managers working for family offices with a total of US$98.4 billion assets under management as of November 2022. The study found that the next generation are placing more consideration on investment planning and thinking ahead, with 39% of interviewees ‘strongly agreeing’ that younger family members are driving sustainable future planning. This figure rises when including the 58% of respondents who answered, ‘slightly agree’.
The findings of the study align with Knight Frank’s 2020 ‘Wealth Report’, which found that 80% of UHNW investors want to see more ESG-compliant assets, the main motivation being future-proofing their portfolios. Additionally, the report found that those with inherited wealth now have a much greater interest in philanthropy and sustainability.
The next generation are already influencing the family business and family investments. 88% of respondents from the study suggesting that family offices are increasingly diversifying their portfolios into a wider range of assets to meet these new investment demands.
Sustainability is set to play an essential role in alternative asset allocation. While generating financial returns is still one of the main priorities for family offices and businesses, the pandemic highlighted that ESG – environmental, social, and governance – factors cannot be ignored. According to the Financial Times, millennials are “leading the change for impact investments as well as those that meet ESG criteria’s” – with 64% of the next generation likely to make investment decisions based on societal problems that are important to them.
The challenge is to balance these factors with strong financial returns, something that the next generation is embracing. UBS’s Global Family Office report showed that (of the 121) family offices surveyed, almost two-thirds regarded sustainable investing as a necessary factor not only in their financial planning but moreover in their legacy and purpose.
While the drive and determination are clear – leading families want to pursue sustainability investment opportunities to future-proof their portfolios and leave a lasting legacy – the question remains how to engage the next generation to do so. Forbes recognise some of the key challenges awaiting family offices, including “supporting the formulation of policies and strategies, negotiating and monitoring development interventions, and the mobilization and allocation of funds and embracing environmental, social and governance applications in private investments” to drive opportunities and create long-term value for society throughout the investment value chain.
However, these challenges also bring opportunities. Leading families are uniquely positioned to both fund global ESG issues – contributing to the enormous wealth gap that is needed to meet the Sustainable Development Goals by 2030 – as well as leave a positive family legacy enhancing both a family’s reputation on the global stage while generating a financial return.
For further reading, please see the full reports here:
Matthew Millard-Beer is CEO & Founder, based in Itriom’s London Office.
Itriom is the global impact platform helping leading families shape a better world. Itriom’s platform enables families to refresh and redesign their values, aligns them with the right UN Sustainable Development Goals, combining them in an agreed purpose and a Family Impact Charter. Itriom’s platform supports the development of impact initiatives and whilst providing discrete and secure spaces for peer-to-peer messaging and collaboration. Itriom’s core practices in leadership, geostrategy, and sustainability benefit clients by developing strategies to engage and support the next generation in building a lasting legacy of which families can be proud.
Itriom’s leadership and resilience practice instils all-encompassing leadership in support of principals of leading families and the next generation preparing for family succession, transition and evolution.
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