Over the last couple of years, we have experienced a shift in focus from family offices across the globe. From a clear focus on return, risk and portfolio management to a more philanthropic focus on investments looking at sustainability, ethics and the environment – so-called impact investing. This focus, and pressure, particularly comes from the Millennials – people born between 1980 and 2000.
WHY INVEST IN REAL ESTATE WHEN YOU CAN SAVE THE WORLD?
With a change of generation comes a change of mindset. The focus away from old school portfolio management towards a more conscious investment strategy is not limited to the world of family offices. We see it with companies focusing on sustainability and branding themselves as being “green”, with elections being called climate elections due to the success of the green parties, and we see it in the debate sections of the newspapers.
“Global instability, the evolving story of Brexit and other political developments are calling into question accepted norms and challenging family offices to re-examine their purpose and the strategies that will best enable them to achieve their goals both now and into the future.”
Deloitte, 2019 Family Office Trends
Much of the pressure towards companies and politicians comes from the Millennials – children of the Baby Boomers, who in Western Europe and North America are associated with privilege. Generally, the Baby Boomers are a wealthy generation, but with that has followed consumerism and over-consumption. A tendency which the Millennials rebellion against by focusing on sustainability and protecting the planet.
“Younger clients tend to focus less on material objects such as yachts and airplanes, although they have sufficient assets to use as collateral. They take considerable pride in their businesses and how they treat employees. At the same time, investing in environmental, social and governance (ESG) projects has become popular, and is often seen as a more efficient use of funds than pure philanthropy, to achieve social justice and societal change.”
Bloomberg, The Future of Family Offices 2017
MAKING SENSE OF YOUR INVESTMENT
The rebellion is also felt at the family offices, which now meet a different type of questions from their clients. With this new mindset, all links of a company’s food change must be taken into consideration before a company becomes part of a portfolio – which factories do they use, where are they located, how are their employees being treated, are animals being harmed. Sustainability in the broadest sense of the word must be considered, and investments must make sense in other terms than financial terms. According to Bloomberg’s The Future of Family Offices 2017 report, 62% of family offices are now active or expect to be active in impact investing.
“Transitions almost always mean change so it’s not just about letting them know what you do but also about understanding what they want, how they want to work and, most fundamentally, how the vision for the family enterprise – its purpose – may evolve.”
Deloitte, 2019 Family Office Trends
A GREEN BUSINESS OPPORTUNITY
The world of family offices might traditionally be grey and dusty, but for the ones being quick on their feet, the Millennials have presented the family offices with a great business opportunity; The opportunity to brand themselves as being “green”. We have seen it with production companies calling themselves “green” for a while now, and even pension funds are now branding themselves or at least certain products as green or sustainable, and now the time has come for family offices as they become more and more brand-oriented.
THE NEW FAMILY OFFICES
I believe that the new family offices should not only be offering green and sustainable products. Those that will succeed in the future are those that will focus on an authentic partnership with personal relationships and a purpose in life as well. We need to focus on branding, sustainability and the climate – but also on networking and time well spent.
“The Family Office Exchange(FOX) addresses some predominant millennial motifs in its 2015 study, Engaging the Client of the Future. The FOX study highlights five salient themes applicable to the current generation: They “prize relationships,” and must relate to advisors on a personal level; they “crave authenticity,” whether in work, play, consumption or investing; they “operate in real time,” being inundated with information; they value entrepreneurship; and are sophisticated, highly educated and well-traveled.”
Bloomberg, The Future of Family Offices 2017
CO-SHARING AND CO-INVESTMENTS
Another trend that derives from the green wave and over-consumption is the Millennials’ urge to rent rather than own and to share anything shareable – whether it be electric cars, a house or their clothes. Unsurprisingly, this trend has spread to family offices and investments as well.
“We are seeing a steady increase in interest in co-investment as vendors seek investment from new sources and family offices either establish their own fund structures or seek to partner with private equity or with other family offices to by-pass traditional investment pathways and invest directly, (…).”
Deloitte, 2019 Family Office Trends
I believe that co-investments with other family offices will be a greater part of family offices’ portfolios in the future – particularly co-investments in the profitable SME sector. But also, that family offices will seek other family offices to invest with.
“Family offices are increasingly concerned with and focusing on the challenge of building the right team to deliver on the family’s objectives”.
Deloitte, 2019 Family Office Trends
This more direct form of investing requires a different skill set – one that is focused on operational skills, networking and social skills, as well as an entrepreneurial mindset of both the investor and the family office. Hopefully, the focus on fees will disappear when the results of the management team shows.
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We are all aware that we are handing over the planet to the next generation, and family office clients are also aware that they are handing over their portfolio to the next generation – and that portfolio better be one not to be ashamed of, and one that makes up for the over-consumption of the Baby Boomers.
Daniel Hansen
Founder & CEO
OMNIA Global