What are the trends for Single Family Offices this year?

The primary goal of a single family office (SFO) is to provide comprehensive wealth management services tailored to the specific needs and objectives of the single high-net-worth family. We have seen some interesting trends in the SFO arena over the last 12 months and having helped many with their family office software needs, here are our predictions for what single family offices will do during 2023.

Single family offices are growing bigger and more complex in structure for several reasons:

1. Increasing Wealth: The wealth of ultra-high-net-worth families has been growing steadily over the years, and as their wealth grows, so do their financial needs. As families become more affluent, their financial requirements become more complex, requiring sophisticated solutions and strategies that only larger and more complex SFOs can provide.

2. Globalization: Ultra-high-net-worth families are increasingly becoming global, with assets and investments spread across multiple jurisdictions. This has resulted in the need for SFOs to establish a global presence, requiring additional resources and expertise.

3. Investment Complexity: The investment landscape has become more complex, with alternative investments and private markets becoming more prevalent. These investments require specialized knowledge and expertise, which can be better provided by larger and more complex SFOs.

4. Increased Regulation: As the regulatory environment becomes more complex and demanding, SFOs must have the resources and expertise to ensure compliance with various regulations, which can be easier for larger and more complex organizations.

5. Family Dynamics: As families become more complex, with multiple generations, and diverse interests and goals, SFOs must be structured to manage and address these dynamics, again, easier for larger and more complex organizations.

Single family offices have become more active in operating businesses because of:

1. Control: Many ultra-high-net-worth families prefer to maintain control over their business interests rather than relying on external managers. By operating their businesses, families can have greater control over strategic decision-making, operations, and long-term planning.

2. Strategic Advantage: SFOs can leverage their wealth and expertise to create a competitive advantage for their businesses. This includes access to capital, talent, and specialized knowledge, which can enable them to make strategic investments, pursue new markets, and drive growth.

3. Diversification: SFOs are looking to diversify their investment portfolios beyond traditional asset classes. Investing in operating businesses can provide an additional source of returns and diversify their portfolio.

4. Legacy: Many ultra-high-net-worth families have a desire to pass on their wealth to future generations. By operating businesses, they can create a legacy for their families and preserve their wealth over the long term.

5. Philanthropy: SFOs are increasingly interested in using their wealth and resources to make a positive impact on society. Operating businesses can provide a platform for families to pursue philanthropic initiatives and support causes they care about.

Single family offices are diversifying and resembling private banks for several reasons:

1. Asset Management: SFOs are increasingly managing complex and diversified asset portfolios, which requires specialized knowledge and expertise. As a result, SFOs are hiring investment professionals with backgrounds in private banking to manage their assets.
   
   
2. Client Services: SFOs are expanding their service offerings beyond investment management to include private banking services such as lending, cash management, and custody services. This enables SFOs to provide a more comprehensive suite of financial services to their clients.
   
   
3. Risk Management: As SFOs become more complex and diversified, they require sophisticated risk management strategies. Private banks have developed advanced risk management systems, which SFOs are adopting to manage their portfolios.
   
   
4. Regulatory Compliance: As regulatory requirements become more complex and demanding, SFOs are adopting private bank-like compliance structures to ensure they remain compliant with regulatory requirements.
   
   
5. Family Office Consolidation: The family office industry is consolidating, with many smaller family offices merging to form larger, more complex organizations. This has led to the emergence of multi-family offices that resemble private banks, providing a range of financial services to multiple ultra-high-net-worth families.

We have also seen that Single family offices are taking more risks in search of alpha due to:

1. Increasing competition: With the proliferation of private equity and hedge funds, generating alpha has become more challenging. As a result, SFOs are taking more risks to generate alpha and outperform benchmarks.

2. Longer investment horizons: SFOs are typically focused on preserving wealth over the long term and have longer investment horizons than traditional asset managers. This allows them to take on more risk and pursue higher returns.

3. Specialized knowledge and expertise: SFOs have access to specialized knowledge and expertise that allows them to identify unique investment opportunities that may offer higher returns but also come with higher risks.

4. Risk tolerance: SFOs typically have a higher risk tolerance than traditional asset managers due to their ability to absorb short-term losses and focus on long-term wealth preservation.

Single family offices are trying to attract more talent to support:

1. Increasing complexity: As SFOs become more complex, they require specialized knowledge and expertise in a variety of areas, including finance, law, taxation, and investments. Hiring top talent allows SFOs to manage their operations more effectively and navigate the complexities of the wealth management industry.

2. Attracting top talent: SFOs are competing with other wealth management firms for top talent, including private banks, hedge funds, and other asset management firms. Offering competitive compensation packages and attractive benefits can help SFOs attract and retain top talent.

3. Succession planning: Many SFOs are facing succession planning challenges as the founders of the family office retire or pass away. Attracting top talent can help ensure a smooth transition of leadership and continuity of operations.

4. Innovation: SFOs are looking to innovate and stay ahead of industry trends. Hiring top talent with diverse backgrounds and perspectives can bring new ideas and approaches to the organization.

5. Family values: Many SFOs place a strong emphasis on family values and culture. Hiring staff who align with these values can help preserve the family's legacy and ensure the family office operates in accordance with its values.

Single family offices are looking at automation and integration with external parties for:

1. Efficiency: Automation and integration can streamline operations and reduce manual processes, allowing SFOs to operate more efficiently and cost-effectively.

2. Risk management: By automating processes and integrating with external parties, SFOs can reduce the risk of errors, fraud, and operational disruptions.

3. Scalability: Automation and integration can help SFOs scale their operations to manage larger and more complex portfolios without increasing headcount.

4. Data management: SFOs are managing increasingly large and complex data sets, and automation and integration can help them manage and analyze data more effectively.

5. Access to external resources: SFOs can leverage external resources through integration, such as third-party data providers, investment platforms, and other technology solutions, to enhance their capabilities and generate better investment insights.

6. Client service: Automation and integration can help SFOs provide more personalized and responsive service to clients, improving the client experience.

Overall, single family offices are likely to continue to evolve and adapt to changing market conditions and investor preferences. 2023 is going to be another interesting year in the investment markets and we are keen to see if our predictions are true.