I’ve met Oliver Oswald, the Managing Director and Head of Family Offices for Germany, Austria at AltamarCAM and during our conversation in Vienna at Zero One Hundred Conferences, he delved into the complex topic of Family Offices. In an era marked by rapid transformations in the financial sector, family offices stand at a pivotal juncture, grappling with a multitude of challenges and opportunities. As we delve into the future of these entities, particularly single-family offices (SFOs) as a rising category, it becomes evident that only the ultra-wealthy, with assets ranging from $100 million to $1 billion under management, will sustain the traditional SFO model. This shift is largely influenced by macroeconomic trends, regulatory changes, and the increasing complexity of managing multigenerational wealth – and will mark a moment in time where the SFO will rise in power and assets under management.
The Exclusivity of Single-Family Offices
The landscape for family offices is undergoing a profound transformation – driven by the need for more specialised and high-touch services that cater to the unique demands of the ultra-wealthy. “The evolution towards exclusivity in single-family offices is not merely a trend but a necessary adaptation to the intricate dynamics of managing substantial wealth,” explains Oswald. This move towards exclusivity is precipitated by the escalating costs and resource demands inherent in providing bespoke wealth management solutions, compelling SFOs to cater predominantly to the highest echelons of wealth.
Macro Trends and Challenges of Family Offices:
o Transformation: As we stand on the threshold of 2024, family offices are undergoing significant transformation. Factors such as regulation, technology, risk, and governance are driving change.
o Growing Prominence of Private Assets: Family offices are increasingly allocating their wealth to private assets, including private equity, infrastructure, and venture capital.
o Complexity: Managing family wealth across generations is complex. Single-family offices (SFOs) traditionally catered to the unique needs of a single wealthy family. However, as wealth grows, so do the complexities of managing it.
The Shift Toward Exclusivity of Family Offices:
o Resource Constraints: SFOs require substantial resources—both financial and human—to operate effectively. As the ultra-wealthy seek more personalised services, SFOs face resource constraints.
Impact on Smaller Family Offices:
o Consolidation: Smaller SFOs may face challenges in sustaining operations independently. Some may choose to merge with larger SFOs or multifamily offices (MFOs) to benefit from shared resources.
o Outsourcing: Smaller SFOs might outsource certain functions (e.g., investment management in private markets) to specialised service providers. This allows them to maintain personalised client relationships without the burden of full-scale operations.
o MFOs: Multifamily offices, which serve multiple wealthy families, are gaining prominence. They offer a middle ground between SFOs and fully outsourced solutions. Smaller FOs may transition to MFOs to access expertise and cost efficiencies.
To sum up, smaller FOs might adapt by exploring consolidation, outsourcing, or transitioning to multifamily office or private banking structures.
The Future Path for Smaller Family Offices
The impending question then arises: what becomes of the smaller family offices that cannot sustain the operational and financial demands of an SFO? The answer lies in strategic adaptation and collaboration. “Smaller family offices are finding innovative pathways to sustainability through consolidation with larger entities, outsourcing specialised functions, or transitioning into multifamily offices (MFOs),” Oswald elaborates. This shift not only ensures the survival of smaller offices but also enhances their ability to offer tailored services by leveraging shared resources and expertise.
The Wave of Consolidation: A Case Study
The recent acquisition of a 40% stake in AltamarCAM by Permira exemplifies the broader trend of consolidation within the private wealth management sector. This strategic move underscores the importance of maintaining operational independence while benefiting from the synergies of a larger platform. “In the last ten years, private market assets quadrupled to represent 17% of the asset management industry. As the market continues to grow but also consolidate, this transaction allows AltamarCAM to maintain complete independence with no change to the day-to-day operations, coupled with the establishment of strong information barriers. Remaining independent is an approach that has not only led to good results for clients to date, but also allowed the company to develop deep and trusted relationships with clients and the managers it invests with. The company will continue to serve clients with the utmost dedication and local touch. Private markets will continue to expand, consolidate, and adapt to changing dynamics. Strategic moves, sector preferences, and technological advancements will shape the landscape in the coming years. The private markets ecosystem is rapidly re-shaping through both organic scale-up and strategic M&A. Over the last 12 months we have witnessed over 30 transactions in the Alternatives space, and we expect the consolidation trend to continue. Firms are diversifying their assets though M&A, and being a true platform is becoming of utmost importance.” notes Oswald. This trend is expected to continue, reshaping the industry through mergers and acquisitions that foster diversified asset management and platform-based solutions.
From Opportunistic to Professional: The LP Transition
Limited partners (LPs) are also undergoing a significant transformation, moving from opportunistic investment strategies to a more professional and strategic approach. “The transition to strategic asset allocation and a focus on mid-market opportunities signifies a maturation in investment philosophy among LPs,” the expert states. This shift is supported by the engagement of external advisors who aid in navigating the complexities of private markets, ensuring a comprehensive and informed investment strategy. “
- Strategic Asset Allocation (SAA): LPs are increasingly focusing on strategic asset allocation. Instead of chasing short-term opportunities, they carefully design a long-term investment plan.
- Mid-Market Orientation: LPs are shifting away from exclusively partnering with large-scale general partners (GPs) and exploring mid-market opportunities and managers.
- External Advisors and Market Exploration: LPs are seeking external expertise to navigate the private markets. These advisors can help LPs explore the entire investment landscape, including various sub-asset classes beyond traditional private equity. Whether it’s private debt, infrastructure, or other niches, external advisors provide insights, due diligence, and market intelligence. Their guidance ensures a well-informed investment approach.
- The world is moving towards solutions: There has been a shift in investment focus towards providing comprehensive solutions to investors rather than just selling products. Investors are increasingly looking for integrated (one-stop-shop) approaches that address their specific investment needs and objectives, with tailored advice and technology playing a key role.
In summary, LPs are strategically repositioning themselves by emphasising asset allocation, embracing mid-market opportunities, and leveraging external advisors. This transition aims to optimise returns while managing risks in a changing investment landscape.
The Role of AI and Automation in Wealth Management
While the wealth management industry cherishes the bespoke nature of client relationships, there is a growing recognition of the value that automation and AI can bring to the table. “Automation and AI enhance efficiency, provide data-driven insights, and allow relationship managers to concentrate on strategic priorities. While relationships remain artisanal, technology is a powerful ally in managing family wealth effectively. AI processes large datasets, extracting valuable insights. It identifies investment opportunities, trends, and potential risks. Relationship managers can use this information to tailor recommendations, but it’s crucial to understand and respond to customers’ evolving needs and preferences. By adapting to customer requirements, companies can build stronger relationships and provide more effective solutions.” Oswald affirms. These technologies offer the dual benefits of operational efficiency and enhanced insights, enabling wealth managers to tailor their services more effectively to client needs.
Attracting and Retaining Gen Z Talent
In the face of widespread concern about the challenges associated with attracting and retaining Gen Z talent, some firms stand out for their success in this area. “At AltamarCAM we have managed to build a powerful employer brand, which allows us to receive candidates from summer internship positions, permanent internships, and entry level analyst positions. This allows us to have a good pool of candidates who start a professional career in the financial sector with us, learning from the beginning our standards of demand, quality, investment policies and philosophy, client-facing approach, among others. We have a robust team, which grows mainly from the base and learns in a very close way, and with follow-up, from the most senior positions.” Oswald shares. By investing in the professional development of young talent and integrating them closely into the firm’s operations, AltamarCAM ensures a continuous infusion of fresh perspectives and innovative ideas.
In conclusion, the landscape of family offices and wealth management is undergoing significant shifts, driven by economic, technological, and demographic changes. As the industry navigates these turbulent waters, the ability to adapt, collaborate, and leverage technology will be paramount in shaping the future of wealth management for both the ultra-wealthy and the broader investor community.
