Family offices have been around for centuries, but the rapid growth in numbers of billionaires in recent years has seen them become more popular than ever among wealthy families. What does this kind of expansion mean?
The idea of the family office has a surprisingly long history. Although the actual term only gained popularity at the start of the 20th century, due to wealthy families like the Rockefellers and the Morgans in the United States, according to the ‘EY Family Office Guide’, “Family offices [as a concept] have their roots in the 6th century, when a king’s steward was responsible for managing royal wealth.” Some even suggest that the roots stretch back as far as Ancient Rome, where Emperor Augustus Caesar, widely considered one of the wealthiest figures in history, was advised on all matters, financial or otherwise, by his Senate.
Advisors have always played a vital role in guiding and supporting wealthy families and individuals. In the 11th century, Alan Rufus, Lord of Richmond, and William de Warenne, Earl of Surrey, advised William the Conqueror in matters of state. Matthäus Schwarz, the right-hand man of Jakob Fugger, Europe’s most prominent merchant in the 1500s, was one of only a few men trusted to help manage his guesstimated fortune equivalent to nearly USD 400 billion today. As the scope of their responsibilities grew, it became necessary for advisors like these to employ others to help manage their affairs. The term ‘majordomo’, which stems from Medieval Latin and means ‘head of the house’, was given to the head of these teams of advisors who managed an individual’s property, business, assets, and lifestyle – effectively becoming a single-family office in modern terms.
The family office as we know it today originated in the mid-1800s, when the family of financier and art collector JP Morgan founded the House of Morgan to manage their wealth. In 1882, the petroleum magnates the Rockefellers followed suit with their own version. These are typical examples of modern-day embedded family offices serving one family only, a model becoming increasingly rare today given the increased proliferation of wealthy families. The financial services firm Brown Brothers Harriman suggests around USD 100 million of assets is the starting point at which having a family office becomes worthwhile. For its ‘Global Family Office Report 2019’, Campden Wealth surveyed 360 family offices around the world and they had an average of USD 917 million in assets under management.
In Asia, there has been a surge of growth in business which is leading to a rise in the ultra-high-net-worth population.
How they adapt to today’s realities
For families with fewer assets who still want to benefit from the structure and expertise of a family office, multi-family offices – external companies managing several families at once – were created, with increased digitalisation leading to the appearance of virtual family offices more recently. Today, an increasing number of financial institutions provide family office and virtual family office services. These are growing fast in popularity and offer hybrid solutions with greater flexibility than more traditional incarnations.
A prosperous and promising industry
With their increased scope, family offices are becoming increasingly popular. In 2008, there were around 1,000 family offices in the world. Today there are 7,300 according to Campden Wealth (other estimates stretch to more than 10,000), with an estimated USD 5.9 trillion under control. This boom has been driven in part by the enormous rise in the amount of ultra-high-net-worth (UHNW) individuals in recent years.
Particularly notable has been the rise in Chinese and Indian billionaires. Dr Rebecca Gooch, who undertook the Campden Wealth research, explained: “In Asia, where we have seen a remarkable 44 per cent increase in the number of family offices over this period, there has been a surge of growth in business which is leading to a rise in the ultra-high-net-worth population.” Places like Singapore and Hong Kong have become hubs for family offices, joining traditional locations such as Zurich, London, and New York.
All-encompassing services expected
Keith Johnston, CEO of the Family Office Council, which represents around 100 single-family offices in the UK, says the rise has also been driven by the financial crisis, which resulted in many UHNW individuals taking a more hands-on approach to managing their wealth. The family office approach enables them to have more control over their finances while also supporting them with the increased complexity they face in other areas of their lives.
With a growing number of HNW and UHNW families looking to have the full spectrum of financial, lifestyle, and administration services in one place, coupled with the increased focus on home and family life in the wake of the Covid-19 pandemic, the role of expert advisors will become ever more important. Little did Augustus know what he was starting more than 2,000 years ago.
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