Family offices are changing how they approach generational handovers – and it could impact their recruitment strategy
The transfer of a family office from one generation to the next is evolving, driven in part by the increasing age of the generation-in-waiting, and in part by the gulf in investment priorities between family office principals and their children, with the younger generation showing a strong affinity for impact investments – and it could have a significant impact on family offices’ recruitment priorities.
According to The Global Family Office Report 2018 (recently issued by Campden Wealth and UBS), 70% of family offices expect a handover in the next 15 years – yet just 50% have a plan for how they will approach it.
Some clues as to what such a plan might look like are emerging from broader trends in family office investments. Family offices had a particularly successful 2017 thanks in part to bull markets, but also due to an increase in diversification into riskier investment vehicles, which have paid off. Looking forward, the Campden/UBS report shows a trend towards this diversification increasing into impact investment – with some 30% of family offices now engaged in impact investing, and 50% planning to increase impact investments in 2019. Some are taking it even further, with a group of family offices and individual UHNW private investors having recently formed the ‘100% Impact Network’, which requires agreement to place all resources into this category.
These investments – focused particularly in education, environmentalism, energy and resource efficiency – appear to be increasingly driven by the growing influence of the next generation. This influence is both direct and indirect. The increasingly mature age of many heir apparents enables them to undertake senior, if not yet principal, roles in the management of their family finances, and the evidence shows that overwhelmingly they are aiming to introduce impact investments.
In parallel, a significant 27% of the younger generation are on the opposite end of the spectrum, and are disengaged from the management of their inherited wealth (Campden/UBS suggest is because it ‘does not suit their personal interests’). Here the resulting effect on investment strategy is similar however. Working on the basis that the younger generation tend to be more focused on social issues, family offices are increasing impact investment in a bid to better engage this group, aware that success in doing so will be critical to a smooth eventual formal generational handover.
As this trend grows, a corresponding adjustment in family office recruitment strategies seems likely. An appetite for increased impact investment and increased philanthropy could trigger an increase in demand for specialists in this area – and that becomes particularly apparently when seeing how many single family offices and multi family offices are relatively inexperienced in the space.
The gap in impact investment knowledge extends to the businesses which serve family offices, and many are working to fill it quickly. C. Hoare, itself having undergone a generational handover earlier this year, has appointed 32-year old scion Rennie Hoare as a partner and Head of Philanthropy, giving him the objective of introducing ‘millennial thinking’ to its investment strategy – evidence that the bank is evolving its offering to meet private family offices’ growing demand for a sophisticated approach to impact investment.
And sophistication is the key – while traditionally conservative family offices are taking up impact investment uncharacteristically quickly, Rebecca Gooch of Campden Wealth told the FT in September that their inexperience is showing, and that many are ‘struggling to find their feet’ with the investments – i.e., having difficulty accurately evaluating what both their return objective and their ‘social good’ aims should be.
This looks to be good news for those with impact investment experience seeking employment in family offices – and shows the first signs of the winds of change in recruitment for SFOs and MFOs as we move forward. As the generations shift, the investments are evolving, and the expertise of the staff will need to evolve along with them.
This article is written by Paul Avon who is a Director of True House Partners – family office executive recruitment specialists (both single and multi) in London, mainland UK and Europe as well as jurisdictions such as Channel Islands (Jersey & Guernsey), Isle of Man, Bermuda, the Caribbean (British Virgin Islands, Cayman Islands and Bahamas), Mauritius, Seychelles and the Middle East (with a particular emphasis on United Arab Emirates) and the Far East including Singapore & Hong Kong. For more information, please call +44 (0)20 7846 0025 or firstname.lastname@example.org website: www.truehousepartners.com