One of five key family office trends in 2018 will be the development of new investment opportunities
One of five key family office trends in 2018 will be the development of new investment opportunities, according to Catherine Grum, KPMG’s Head of Family Office Services:
Creation of Funds
There will be a pick up in the pace of family offices creating their own investment funds.
This will be driven by a combination of factors, including building on the increased development, during recent years, of successful investment strategies by family offices.
Some of the family offices that have pursued their own direct investment opportunities are now keen to widen their range of investments and share their risks by inviting others to join them.
Meanwhile, there is growing appetite from other families to making more direct investments. As many in this position consider the involvement of fellow families in an opportunity to be something of a kitemark, there will be considerable interest in family-run funds from this pool of investors. Real estate and investment in small entrepreneurial businesses will be two of the most popular asset classes for these funds, offering families diversification opportunities.
Family offices are increasingly thinking globally about investment opportunities and are marrying this opportunistic approach with a risk management emphasis delivered by partnering and collaboration.
The internationalising of family investing is to a large extent across the board, but we are particularly seeing exploratory ‘forays’ from American family offices who consider some European and Asian markets as less developed than their own, for example those looking for tech focused opportunities. Delegations of families visiting new markets are also underway from further east. These form a good environment for growing international investor networks and provide a potential platform for collaborations. This is an entirely natural way for families to explore new territory while seeking to dilute their individual risk exposure when out of their comfort zone.
2018 will be a year in which family offices more proactively address risk.
With growing awareness and concern on the part of families about cyber risks to data, and the impact of social media on privacy and reputation, I have no doubt the next 12 months will see more family offices formalise their approach to tackling such risks.
At the larger end of the scale there will be the creation of chief risk officer roles or the specifying of risk management as a key remit within existing roles. Of course families have, to date, been very alive to risk, but the difference will be the evolution of this from individual silos to a more integrated and proactive approach, in response to a rise in awareness of the possible impact on them. As the profile of leaks and hacks has grown and become a talking point amongst the family office community, so too has an acceptance that this can no longer be badged a large corporate-only threat.
At the other end of the scale smaller family offices are looking to ensure the basics of a crisis handling plan are created, such as pulling together, and making accessible to the right people, the contact numbers of key family stakeholders and their advisors, so they can be reached quickly in the face of a problem. Others will be talking to firms such as mine about cyber security checks, an essential step for those with employees or possession of other sensitive data that might be covered by the GDPR (General Data Protection Regulations) legislation taking effect in May. Screenings for data vulnerabilities will be useful in this regard, providing either reassurance or flagging areas in need of greater protection.
Flight to Quality & Simplicity
This trend is something of a subset of the risk issue. Driven by reputation management and transparency objectives, families will be asking their advisors more about the nature of their investments and paying closer attention to the structures and jurisdictions in which they are held.
When, in previous times, a family might have been satisfied with accepting that their investments were subject to significant complexity, we are hearing more from clients about their appetite to better understand their arrangements in order to feel more in control.
A specific concern within this subject area is the ambition to ‘futureproof’ investment structures given families will often be creating a vehicle for use by future generations. This means some will forgo a structure that might be the most effective right now, for one less vulnerable to regulatory or other changes in the near future.
Finally, as more of the younger generation become involved in their own family offices, the importance of taking a socially responsible approach continues to become more of a priority, impacting not only on the family’s philanthropic initiatives but also on their approach to investing. While impact investing is still struggling to get critical mass, the effect will be felt more broadly across investment portfolios from screening mainstream opportunities with a more critical eye to seeking out industries such as green tech.
For further media information contact:
Alison Anderson, KPMG Corporate Communications
T: +44 (0) 113 254 2980
About KPMG in the UK
KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 14,500 partners and staff. The UK firm recorded a revenue of £2.2 billion in the year ended 30 September 2017. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 152 countries and has 189,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.