Family guys focus on the Fed, tech and succession plans

Research from Citi Private Bank shows family offices are starting to behave more like institutional investors, putting cash to work within a dedicated portfolio strategy.

Family offices are becoming increasingly professionalised and global. And according to research from Citi Private Bank, it is the path of interest rates and organisation of effective succession planning that top their table of key concerns.

With the interest rate cycle dominating financial headlines in recent months, 52 per cent of family offices are keeping an eye on whether rates stay the same or rise further, according to Citi Private Bank’s 2024 family office survey.

US-China relations and market overvaluation were also vital for the wealthy families. But for the first time since 2021, inflation worries were not cited as a significant problem.

AI shift

Exposure to artificial intelligence (AI), is becoming increasingly important for most families, with half reporting investments in public or private equity and another quarter actively considering it, according to the report.

“People are talking about it and putting their money into AI,” says Hannes Hofmann, head of the family office group at Citi Private Bank. “We’re seeing this in public equities or private equity, and that's a big change to other technologies,” he claims.

Previously, he says, people made pledges to invest money in “trendy sectors” like digital assets but have yet to go through with it. But with AI, the game is shifting. Yet, while family offices have good exposure to AI, they need help implementing it in their operations.

This positivity resonates right through the research, with 97 per cent of family offices expecting positive returns over a 12-month horizon, indicating significant optimism.

“Family offices do not expect interest rates to push the economy into recession,” says Mr Hofmann. “They think that interest rates will be lower and people are extremely positive in their investment outlook.”

Such emotions have substance, he says, referring to the Federal Reserve’s recent lowering of rates by 50 basis points.

This is the type of economic atmosphere where families are prepared to spend more time on governance, particularly issues around asset preservation and preparing the next generation for future responsibilities.

“When markets are becoming difficult, family offices focus on markets,” says Mr Hofmann, which was the case last year. “But what we are also seeing is when markets become better, family offices suddenly have more time to work on the softer parts.”

Those “soft” parts are dominated by challenges associated with generational succession.  Families know the $82tn wealth transfer is coming, says Mr Hofmann, but the next generation might want to do things differently. “They want more transparency, more technology. They want a clearer understanding of how the investments are actually fitting into their non-financial goals, like ESG,” he says.

“They want to be more philanthropic, and they want to measure the impact of philanthropy. And there's also more women making decisions in the next generation than the old generation.”

Professionalised families

In order to achieve these goals, family offices are increasingly professionalising as they partner with outside service providers, according to the report. Complex tasks, such as investment management (43 per cent), tax (41 per cent), and wealth planning (41 per cent), are often performed with external partners.

With increased professionalisation, “they behave like institutional investors, which means they’re not trying to time the market,” says Mr Hofmann. This means families are more bullish, putting cash to work. More families are also formulating “investment policy statements” and establishing “investment committees”.

Professionalisation is set to be even more pertinent as families become more global. According to the report, family offices reported that 71 per cent of their families were international.

“The more generations the family office serves, the more global the families become,” says Mr Hofmann. “I think that's one of the things banks need to prepare for.”