For Australia’s millionaire and billionaire families, managing their wealth can take just as much work as the enterprising activities that created it.
High-wealth families can be balancing varied risk appetites for investing, competing views on what ‘greater purpose’ their wealth should be used for, how succession of leadership should be handled, or the right way to ‘leave a legacy’ for future family members.
In an environment of increased regulation and media scrutiny, they are looking for governance structures to keep their obligations and reputations in check. They are also adapting to the changing pace of technology and cyber risks.
A need to build frameworks for processes and decision making around these and many other complexities has led to the rise of the ‘Family Office’, through which families run their wealth as a ‘business’.
The Family Office steps up
Family Offices have long been common in the US, but since the start of this century they have found their place in Australia, Asia and New Zealand. They are largely the domain of families with wealth over $120 million, but new digital platforms are making it more cost effective to run them for those with wealth below that figure.
In addition to the motivations noted earlier, Family Offices have grown due to the rapid increase in wealth realisation events post the global financial crisis (GFC).
Other factors include the increase in professional and financial services firms catering to independent wholesale private clients, and also the greater importance of private capital in funding economic activity.
Family Offices are now competing with institutions as the preferred buyers of private assets, and they are increasingly active in Venture Capital (VC). Their Founders/Principals are being sought out for their ability to add value beyond the provision of capital, thanks to their vast business experience and insights.
Family Offices in plain view
KPMG Enterprise, along with The Table Club, a private membership group connecting 1,300 Family Offices and ultra-high net worth individuals across 10 geographies, set out to get a much clearer understanding of the evolution of Family Offices, their challenges and goals for the future.
To do this, we undertook our Wealth in Transition survey and interviews with 80 Family Offices across Australia, Asia and New Zealand in late 2020 to early 2021.
Nearly one-fifth of our participants reported controlling over $1 billion of financial assets, 20 percent in excess of $500 million, and 30 percent over $100 million. The balance of participants, approximately 30 percent, reported being in control of up to $100 million of financial assets.
We wanted to take a closer look at issues such as:
- how Family Offices are forming a mission and purpose and the impact of this on their strategies
- their approaches to investment risk, beliefs and management, and how they allocate capital
- how they navigated the COVID-19 pandemic and its impact on their wealth
- their approaches to balancing generational differences in opinion and leadership succession plans
- their strategy for building a legacy for future family members
- approaches to Environmental, Social and Governance (ESG) matters when it comes to investment and charitable ventures
- the professionalisation of their philanthropy for greater impact
- how they are operationalising, embracing emerging technologies and cyber risk mitigation
The very insightful responses revealed a great diversity of views and relative positions within the Family Office sector.
Among our findings, we discovered that having a mission and purpose for the Family Office – above accumulation of wealth for wealth’s sake – matters immensely to the younger generation. We saw how they are allocating their capital in a turbulent market, and discovered that while COVID-19 had a limited impact on their overall wealth, it shook things up in other areas – among many other insights.
Our research was supported by an experienced Steering Committee of Family Office executives and finance professionals from different generations, including David Murray AO, the inaugural Chairman of the Australian Future Fund. Our committee helped us to unpack and contextualise the most exciting insights within the survey data, which help us bring the Australian Family Office into ‘plain view’.