What are the biggest challenges for family offices in 2024?

Family offices are facing a cocktail of challenges, but also plenty of opportunity in the years ahead, according to a new report from Deloitte.

Its research reveals the top 10 trends for family offices, gleaned from responses from 354 single family offices around the world with average AUM of US$2 billion working for families with an average $3.8 billion in total assets.

“Globally, family offices are tackling ongoing economic challenges and geopolitical conflict—all while mitigating risks both internally and externally,” said Wolfe Tone, Deloitte Private leader, Deloitte Global. “Beyond navigating ongoing talent and digital transformation challenges and shifting investments from public to private equity, leaders are also focused on creating robust succession planning strategies to properly equip the next generation and produce a resilient future.”

With most of the respondents expecting their AUM to rise in 2024, family offices are prioritizing risk management amid recession fears, geopolitics, and inflation which rank as this year’s top three market risks. Risk management was recently identified as a ‘dangerous’ weak spot in family offices by law firm Dentons.

Another key theme is the shift from public to private equity. Data shows that private equity accounted for 30% of the average family office portfolio in 2023, up from 22% in 2021, while public equities accounted for 25% of portfolios in 2023, down from 34% in 2021.

PRIVATE EQUITY FOCUS

Private equity is the top asset class for family offices and is also their target for larger investments with 29% of family offices targeting an increase in private equity funds, 27% in direct private investments, and 25% in private debt/direct lending. Meanwhile, 29% are targeting a lower cash holding.

The report has identified divergence in sustainable investing with European family offices increasing and North American peers decreasing. While 57% of European respondents have engaged in sustainable investing (21% in 2022), just 26% do so in North America (34% in 2021).

Other trends include the hiring of broader talent and outsourcing to facilitate an evolution of family offices’ businesses.

“Family offices worldwide are focused on expansion. In turn, they are exploring various avenues for hiring and retaining talent to stay competitive in today’s evolving market—with many increasingly looking for expertise outside the family to further professionalize their services,” says Dr. Rebecca Gooch, Head of Deloitte Private Insights, Deloitte Global. “They are also increasingly relying on outsourcing their services to third parties to scale up their initiates and access specialized knowledge.”

SUCCESSION PLANNING

With around four in ten wealthy families facing a generation transition in the next decade, succession planning is underway among the most forward-thinking families.

However, 41% of families currently operate without a plan for the succession of the family leadership, while 50% of family offices also lack succession plans for their leadership teams. There is also concern that the next generation is not up to the job with 30% of family offices say they lack confidence that successors are prepared for succession within the family office, and 28% say that Next Gens are unqualified to take over.

“As the world continues to rapidly evolve, family offices globally face a number of challenges and opportunities to drive growth and preserve longstanding legacies,” says Adrian Batty, Family Enterprise leader, Deloitte Global. “Family offices across the world should prioritize succession plans for the next generation that address both short- and long-term goals, identify governance tactics that ensure their offices remain competitive, and look to adapt their strategies to future-proof their business.”