Inside the Fiercely Private World of Family Offices
A new Wharton study brings rare insights from the secretive club of family offices. Led by Wharton management professor Raffi Amit, the seventh bi-annual survey by the Wharton Global Family Alliance (WGFA) reveals the investment avenues of family offices across 21 countries, the size of the assets they manage, and the returns on those investments. The survey also tracks how family offices approach technology, human capital, and philanthropy. The WGFA is a unique academic-family business partnership aimed at creating and disseminating actionable knowledge for substantial families and their businesses.
The 7th WGFA survey tracks the key issues affecting substantial families, their family businesses, family offices, and family foundations.
Profile of respondents
- Thirty-four percent of respondents have less than $500 million in assets under management, 24% have between $500 million to $1 billion, and 42% have greater than $1 billion.
- The top three asset classes are public equity (34%), private equity (22%), and real estate (10%).
- About 35% of respondents have made or plan to make ESG investments.
- Respondents are from 21 countries.
How they performed financially
- About 45% of respondents reported over 10% average annual net returns over a five-year period that ended in December 2023.
- No respondent reported negative net returns over the same period.
- Family offices incur 40% of investment management expenses in-house; 29% is outsourced.
Assets Under Management
Top Asset Classes
“Family offices are the backbone of a family, addressing a broad range of issues beyond investment management that contribute substantially to family harmony and prosperity.”
—Raphael (Raffi) Amit, Wharton Management Professor
ESG Investment Approaches
Philanthropy Destinations
“Succession planning isn’t just a good business process; it’s a safeguard for a family’s legacy, harmony, and sustained success.”
—Raphael (Raffi) Amit, Wharton Management Professor
Key Takeaways
Cohesive succession planning
Only a third of family offices have formal or informal plans for ownership, management, and control transitions; only a third of stakeholders are aware of these plans. Clearly, families struggle with putting structure, process, and formality around family succession and transitions. That’s because they face overarching challenges during transitions from concentrated to dispersed ownership. Those include:
- Reaching consensus on major issues;
- Balancing diverse interests/viewpoints of family members;
- Managing the liquidity needs of different generations while trying to preserve the real value of the family’s wealth; and
- Attracting and retaining outside talent while keeping family members involved in the business.
Neglecting to deal with those challenges can have serious implications for family cohesion, legacy, and the family dynamic.
Next generation not fully engaged
Only 12% of respondents expect their next generation to work in family offices in the future, even if merit and family employment policy criteria are met. But many family offices sponsor educational programs for their next generation. That preparation is key to safeguarding the family’s legacy, prosperity, and harmony.
The significant variation in the engagement of eligible family members is alarming, and it suggests that many next-generation members may not be fully invested — nor prepared — to navigate the complex issues tied to succession in ownership, management, and control. That may be why more families are now turning to non-family members to lead, and merit-based factors are prioritized over seniority or ownership in selecting future leaders.
Slow to embrace AI, new tech
The survey suggests that family offices may be lagging in adopting AI and also other innovative and cutting-edge technologies. That slow adoption could be because of the longevity of professional teams, overreliance on established processes, and the lack of incentives to take risks with new tools. Family offices may also want to avoid learning pains and technology false starts.
Consequently, family offices may find their investments saddled with higher costs and reduced effectiveness, potentially resulting in suboptimal returns that could erode over time. They could avoid those negative outcomes by outsourcing more of their investment strategies to those with a competitive cost structure and technological advantage. For broader adoption, they have to overcome existing challenges and build trust in these tools.