Family offices are undergoing an extraordinary evolution, as they rapidly transform their structures and operations to meet the emerging needs of the families they serve. For external asset managers (EAMs), these shifts present significant opportunities.
EAMs have always offered family offices tailored investment strategies. As family offices diversify, so these opportunities are increasing significantly: often they lack sufficient specialist expertise, so the need for external resources and services grows. These services may well be within the remit of agile EAMs that can adapt to meet these demands. In particular, there are five areas of opportunity for EAMs within the family offices of the future. These are as follows:
1. Leveraging agility
The gradual departure of high-net-worth individuals (HNWIs) from private banks in recent years has been notable. One of the primary reasons is that banks generally have a narrow investment focus, especially in alternative asset classes where they only offer moderate assistance.
As alternative asset classes like real estate and private equity become increasingly sought after as parts of a balanced portfolio, both HNWIs and the banks themselves are turning to EAMs for the in-depth advice they can offer. This presents opportunities for agile EAMs.
Beyond this, there is also the opportunity to expand service offerings through technological solutions that enhance the asset management process within banks and family offices. On this front, there is no limit to what can be achieved, but agility is vital!
2. Building strong client relationships
Smaller than their banking counterparts but often with considerably broader investment scopes, EAMs can offer more comprehensive and customisable support across asset classes. They can also maintain closer relationships with clients, which fosters a greater understanding of client objectives and alignment of interests. All of which sets the foundation for a future built on engagement and trust that grows with the years. The more EAMs tailor their offerings to the individual needs of their HNWIs, the brighter this future will be as they become indispensable assets within family offices.
3. Maintaining cost competitiveness
EAMs tend to have significantly lower overhead costs than large private banks due to their leaner operations. As a result, they are generally far more competitive on pricing. This competitive edge should be used to retain clients and grow the business. In addition, by achieving economies of scale, EAMs can capture additional profit within the family office space.
4. Embracing technology
EAMs continually strive to identify new opportunities, innovative solutions and new methodologies. Doing so achieves ‘operational alpha’ – the value gained by improving operational processes to increase efficiency and minimize costs within their organizations. As part of their value proposition, EAMs can pass this learning along to clients.
As trusted partners, they are in a prime position to intermediate between banks and HNWI clients to implement the best technology solutions for clients’ needs. Modernizing and systematizing asset management, accounting and compliance within these organizations has significant potential for earnings. In addition, as data sources and software platforms continue to mature and become increasingly sophisticated, the insights gleaned from these can contribute to substantial cost savings for clients. This factor speaks volumes when it comes to remaining competitive, building trust and solidifying profitable long-term relationships.
5. Leading towards sustainability
Climate change is a topic on everyone’s radar, creating risks and driving opportunities for EAMs. A recent Deloitte publication notes that the financial sector will play a vital role in tackling climate change. It is believed that the collective power of asset managers could have a critical impact on the sustainability agenda.
Family offices are increasingly environmental, social and governance investment mandates. This trend will become increasingly pronounced as the next generation takes the helm within family offices. EAMs with ESG expertise who find ways for families to do good while making a profit are likely to be in high demand for the foreseeable future.