For family offices, a strong 2024 financial performance and optimistic outlook signal a return to normalcy after several years of economic upheaval.
The unprecedented events of recent years, including the COVID-19 pandemic and wars in Eastern Europe and the Middle East, have affected the global economy and produced volatility in financial markets. This uncertainty has led to increased caution among family offices looking to preserve the wealth and legacy of the families they serve.
However, in 2024, family offices are reporting more optimistic expectations driven by strong performances in public markets and strategic adjustments in their portfolios.
According to the North America Family Office Report 2023, the most common concern among North American family offices was a U.S. recession, but those fears never materialized. Instead, family offices have broadly experienced investment returns beyond their expectations thus far in 2024, making it an unexpectedly positive year.
According to the North America Family Office Report 2024 , produced in partnership with Campden Wealth, more than 40 percent of responding family offices expect an investment return higher than 10 percent, with a weighted average expectation of 11 percent, in 2024. This outcome would be an increase from the 10.1 percent return estimated for 2023 and one percent achieved in 2022.
The North America Family Office Report explores survey responses from 360 single-family offices and private multi-family offices worldwide, and focuses specifically on the 183 responses from North America.
Providing insight into the evolving state of family offices, the report found that as optimism increases this year, family offices continue to balance the need for wealth preservation with the pursuit of growth. The report also shows an enduring focus on strategic diversification and interest in investments with potential for high growth.
More than half of survey participants (55 percent) said the performance of developed market equities during 2024 was better than they had anticipated.
Over the first half of the year, the S&P 500 rose 15 percent, Nasdaq rose 20 percent and Europe’s Stoxx 600 rose seven percent. For the average family office, developed market equities represent 22 percent of the portfolio. As a result, performance of those markets has provided considerable momentum. But strategically diverse family office portfolios are just one component of a larger strategy.
Another important component of their investment strategies is within private markets. Despite some underperformance in venture capital and real estate sectors due to low exit activity, private markets remain significant in family office portfolios. This year’s survey showed an increased allocation to private credit and direct lending, reflecting a strategic shift towards more complex, income-generating assets.
Meanwhile, real estate, a traditionally stable asset class, has posed challenges due to oversupply and rising interest rates, particularly in the U.S. commercial market.
For 40 percent of surveyed family offices, returns from private debt and direct lending were better than anticipated in 2024. On the other hand, 24 percent said returns from venture capital were lower than expected, and 18 percent experienced lower-than-expected returns from private equity funds. The number of family offices that reported a worse-than-expected outcome from private markets was greater than the number that reported outcomes that exceeded expectations.
Perhaps in response to the global unrest in recent years, family offices widely reported an interest in investing in defense industries, both for the short term and the long term. Other short-term investment preferences include growth equities and obesity drugs.
For longer-term investment opportunities ranging from two-to-five years, family offices’ preference switches from growth stocks to value stocks. Only 16 percent of survey respondents believe the “magnificent seven” tech stocks (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla) will continue to reward shareholders over the long term. Instead, they perceive cybersecurity, semiconductors, and defense industries as rewarding investment themes for the coming years.
As seniors and baby boomers get older, the pace of intergenerational wealth transfer within family offices is set to accelerate. Sixty percent of family offices anticipate that the transition of wealth from one generation to the next will happen within the next 10 years. That figure is driven by the surge in family office formation immediately after the turn of the millennium, which has now been almost a quarter century.
Approximately 80 percent of respondents reported that they view their family office as effective at orchestrating the intergenerational transfer of family wealth, at making informed decisions and communicating with family members.
However, respondents generally do not view family offices as effective when it comes to fostering a collaborative approach between family members and avoiding conflicts between them. While many families may have originally formed family offices in part to minimize family controversy, the offices appear to be falling short of that goal.
Three-quarters of participants are satisfied with the investment function of their family office, both in terms of financial performance and the range of investment options that the family office offers.
However, respondents are more ambivalent on whether family offices are providing value for money (67 percent satisfied). The areas in which family offices appear to be falling short of expectations are succession planning (42 percent) and the associated issue of providing financial education to the next generation (39 percent).
Throughout 2024, family offices report that their overarching economic concern has been the delay in the easing of interest rates by the U.S. Federal Reserve. However, U.S. inflation is no longer adrift from the Federal Reserve’s two percent target and easing appears to have begun. Despite those concerns, most family offices are experiencing a strong financial year and a return to normalcy after several years of upheaval.
Looking to the future, survey respondents say they also foresee risks to financial markets coming from political turbulence surrounding the U.S. election and from geopolitical issues in the Middle East and Eastern Europe. On the bright side, few expect to see a global stock market sell-off.
Specifically in the family office space, respondents expect several current trends to continue, including the fast pace of family office formation, emphasis on governance structures and increasing percentage of investments in private markets.
RBC Wealth Management, a division of RBC Capital Markets, LLC, registered investment adviser and Member NYSE/FINRA/SIPC.
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