Family offices, private organizations that run the ultra-wealthy set’s investments, are growing in number and assets under management, according to a report from JP Morgan Private Bank, which advises them.
There were 10,000 to 20,000 single family offices worldwide as of 2022, many of which have been established in the last 15 years, up from between 6,000 and 7,300, the bank stated, citing survey data from Economist Intelligence Unit and DBS Private Bank. As of 2022, they controlled $5.9 trillion in assets.
A major factor in the growth is that the population of the ultra-high-net-worth people (defined as having a minimum of $50 million) has grown, JPM found, citing its own survey. In 2022, 395,070 very rich individuals and families worldwide controlled more than $45 trillion, or 10.6% of global wealth. That is a big leap from 2004, when approximately 157,000 of them held 9.6%.
The JPM report offered a snapshot of family offices, derived from its canvass of 190 family offices, 144 in the U.S. and 46 internationally.
Many prominent people have family offices, such as that of Lauren Powell Jobs, businesswoman and widow of the late Apple founder Steve Jobs, with Emerson Collective ($28 billion in estimated assets); Walton Enterprises (estimate: $169 billion), sponsored by the Walton family that founded Walmart; and private equity star David Rubenstein’s Declaration Capital (estimate: $4.3 billion). These organizations’ activities range from charitable giving to investing in business startups.
The organizations strive for double-digit returns, with an average goal of 11%—the S&P 500 averaged 10% annually over the past 30 years. And family offices have attracted top-notch talent. Last September, for instance, Mark Baumgartner, who headed investing for the philanthropy Carnegie Corp., left to serve as CIO for global macro investor Ray Dalio’s family office.
“Family offices are taking sophisticated approaches to help broaden the opportunity sets in their investment portfolios,” the JPM report declared. Annual costs to run a family office are an average $2.7 million for operations, with mean staffing levels of 11 people. Almost 80% of family office also work with external investment advisers.
The bigger the office and the AUM, the more staff is needed. The average annual operating cost for a large, established family office is more than $6 million, and nearly 25% have annual costs exceeding $10 million.
Aside from the professional help, the families themselves were a part of investing decision making. Roughly 90% report that family members were closely involved in investment decisions, and almost half indicated those decisions are made by the family principal. That was especially pronounced in the U.S., with 56% of family offices led by the principal member, compared with 26% internationally.
These organizations seek to ensure that all family members feel they are part of the process, the report noted: “Beyond their balance sheets, many families are strategically employing their family offices to build stronger family unity and ensure success across generations.”
About 70% of the offices surveyed cited succession planning and to oversee their wealth as a family office goal, with almost two-thirds of the offices embedding that into their official governance structure.
That doesn’t mean, however, that all the offices reach those objectives. In fact, the report pointed to perceived services gaps in family governance and succession planning (as 31% of them reported) and family wealth education (31%).
Another gap: cybersecurity (40%): “The emphasis on cyber risk is unsurprising, given that 24% report being exposed to a cybersecurity breach or financial fraud,” the report said. At the same time, one in five of the offices surveyed offer no cybersecurity services.
What about asset allocation? Globally, the most popular asset class cited was private equity, with 86% of the offices using it. Public equities were a close second, with 85%, followed by real estate (77%), investment grade bonds (62%) and hedge funds (45%).
This story has been updated.
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Tags: Cybersecurity, David Rubenstein, Family Offices, JP Morgan, Lauren Powell Jobs, Mark Baumgartner, Ray Dalio, succession planning