What is a Family Office?
A "Family Office" is the common name for entities that specialize in serving high-net-worth individuals. Often, it provides comprehensive solutions offering high-quality, personalized financial and investment advice and services. The primary goal of a family office is to manage and preserve family wealth across generations. These offices can provide a wide range of services, from investment management and estate planning to tax services, philanthropy, and even budgeting and lifestyle management. Family offices are tailored to the needs and preferences of the family they serve, often offering a holistic approach to wealth management that combines financial, legal, and personal services. They can be structured as a single-family office, serving one very wealthy family, or a multi-family office, serving multiple clients. The growing importance of family offices reflects a trend among wealthy individuals to centralize control and confidentiality over their financial matters. In this article, we mainly focus on their wealth management function.
Size and significance in the market.
The global family office market is experiencing dynamic growth, reaching approximately $124 billion in assets under management (AUM) in 2023. While North America dominates as the largest market, Europe is emerging as a region with significant potential and growing influence. The growth in the European family office market is driven by both traditionally wealthy families and newly emerging fortunes, reflecting a broad wealth accumulation on the continent. Aggressive monetary easing by central banks is supporting this trend. In 2019, the average AUM managed by family offices was $917 million. Europe, with its rich history and diverse markets, is becoming increasingly attractive to family offices seeking stable and secure investments, especially in the context of growing global uncertainty and market volatility.
Due to their growing resources, family offices have become a significant segment in the financial market. With assets reaching hundreds of billions of dollars, they are important players among institutional investors, influencing capital and investment markets worldwide. Their activities span from traditional asset investments to more complex and niche sectors, such as private equity, real estate, and technology startups. Thanks to their substantial financial resources and strategic approach to investing, family offices have the potential to shape market trends and bring about significant changes in the markets they operate in. Their influence, combined with a high degree of discretion and a focus on long-term asset preservation, makes them a valuable and influential partner on the global financial stage.
Characteristics of Family Offices:
- Long-term vision- From our experience, family offices are forward-thinking investors, whose actions are focused on the long-term preservation and growth of family wealth. Their investment strategies, focused on steady growth and security, reflect the primary goal of passing resources on to subsequent generations.
- Activist approach- ETFs are commonly used by family offices as a means to diversify and stabilize their investment portfolios. As the first element of their strategy, ETFs provide broad access to markets and sectors with limited risk. However, equally important for these entities is the second element of their strategy - activist engagement with individual companies. In addition to investing in ETFs, family offices often seek opportunities where they can leverage their knowledge and resources to actively influence the development and direction of selected firms. This engagement not only allows them to potentially achieve higher returns but also to shape the future and stability of these companies, which is crucial to their long-term investment strategy.
- Seeking market advantages- Family offices often focus on smaller, lesser-known companies that are not widely analyzed by the market. This tactic allows them to avoid direct competition with large funds and capitalize on the potential undervaluation of these companies. Through deeper analysis and strategic approach, family offices can identify and capitalize on unique investment opportunities, gaining a market advantage and creating value that may elude larger, more generalized investors.
- Ideal asset size- With greater resources than individual investors, including even the wealthiest ones, but smaller than large financial institutions, family offices are in a unique position. This allows them to focus on smaller companies and efficiently seek market opportunities that larger players can't afford due to a lack of liquidity in those companies. This strategic advantage provides family offices with both the flexibility and the potential to make investments with high growth potential into companies that are inaccessible to funds or institutions.
Why is it worthwhile for a company to build its brand among Family Offices?
Family offices are exceptionally attractive shareholders, primarily due to their long-term commitment to the companies in which they invest. With substantial resources at their disposal, they typically remain invested in a given company for an extended period, contributing to stability and potential growth for the companies. When seeking stable, growth-oriented ventures, family offices are willing to invest in firms with solid long-term growth plans and prospects. Their interest can not only provide essential funding but also add prestige and credibility to the market.
On the other hand, directing marketing efforts directly towards a select few family offices, rather than thousands of individual investors, can be significantly more effective and less complex. Generating interest from even one family office can yield noticeable results, making a focus on a smaller but more influential group potentially more rewarding. With this approach, marketing campaigns can be more targeted, less costly, and, most importantly, more effective in the long term.
Euro Capital Research specializes in this area and aims to connect high-quality companies with potential investors. We provide data on companies to approximately a hundred family offices in Europe. ECR focuses on presenting valuable information about a selected group of companies, which can be used as an initial tool for screening and evaluating potential investments. Additionally, upon request from family office clients, we organize meetings with company management, enabling direct dialogue and a deeper understanding of potential investment opportunities.
The figures were derived from a study conducted by Mordor Intelligence:
https://www.mordorintelligence.com/industry-reports/global-family-offices-industry
