Family offices in North America have seen their wealth and returns soar past Asia-Pacific and European contemporaries, despite the Covid-19 pandemic, as their expanding vehicles act on their confident economic outlook and eye cannabis investments and fintech transactions.
However, North American families want to cut their exposure to fixed income investments next year, believe their cyber security measures need improvement and fall behind global peers in formal succession planning.
A remarkable 86% of North American family offices said their wealth increased over 2020-21, comfortably ahead of the global average of 79%. Their assets under management increased 58%, a slight dip compared to the 61% global average.
Following a year of solid returns in 2020, averaging 19% for developed markets and 16% for developing markets, in 2021, equities accounted for 34% of the average North American family office portfolio—29% for developed and 5% for emerging markets. Looking at 2022, 31% of family offices said they planned to increase their allocations to developing market equities.
“I feel quite optimistic,” the chief executive of a single family office in Ontario, Canada said.
“Our portfolio of investments and our principal investment have all done well over the last 18 months.”
These original findings and more are revealed in the new flagship Global Family Office Report 2021: Regional Series North America Edition by Campden Wealth with the Royal Bank of Canada, which launches today.
Barely one-third, or 31%, of North American families told Campden Research in 2019 they favoured a growth-orientated investment strategy, but now 45% said they opted for that approach. Their shift paid off, with the average family office portfolio return achieving 15%, more than the global average of 13%.
With more wealth the greater the need for resources to manage it. North American families said they significantly expanded their offices, structures and services over the past 12 months. Information technology infrastructure saw the biggest growth, at 45%, which chimed with the growing popularity of transactions using financial technology. A third, 34%, of respondents said fintech played a role in their dealings, but almost double the number, at 61%, agreed fintech would probably replace traditional banking services in the future.
Almost one-quarter, 24%, of families took advantage of the legalisation of cannabis around North America to invest in the sector, more than the 18% global average. Some 41% agreed cannabis could be a promising investment that family offices should consider, again ahead of 33% of global peers.
The principal of a private multi family office in Florida told Campden Research the time to invest in cannabis was two to three years ago.
“There were some family office club deals available to buy up a lot of the growers and the hydroponic guys,” the principal said.
“That was the time to do it. We didn’t, but I know other family offices that did, and they’ll end up doing well. Now, I don’t know how to invest in it as an individual family office, so we haven’t.”
North American families also had the edge on global contemporaries in their investments in cryptocurrency, with 31% exposed compared to 28%. With an average 40% return in 2020, two-in-five North American families agreed crypto was a promising investment.
However, healthcare was by far the most popular area for investment for 74% of North American families, followed closely by biotech, at 64%, fintech, at 61%, and artificial intelligence, at 49%.
North American families prioritised cyber security over succession planning. A notable 77% of respondents said they had a cyber security plan although 55% said their plan “could be better”. Those numbers were still ahead of the 50% of North American families who said they have a succession plan in place, behind peers in Europe, at 52%, and Asia-Pacific, in the lead with 70%. Of those 50% of North American families who said they has a plan, only 20% said they had a formally written plan, with 27% of family offices admitting they were unprepared for succession.
In turn, more than half, 55%, of North American family offices said their next generation was either somewhat (41%) or very (14%) unprepared to take over control. Almost one-third, at 30%, said the biggest obstacle in succession planning was the reluctance of the patriarch or matriarch to make way for their next-gens.
“I hear so many examples of there being a strong family council, but when there is an issue, it always defers to the parent,” the managing director of a private multi family office in Massachusetts said.
“So, the next gen never learns the necessary tools to succeed. That’s why you see members of the next gen fail.”
Campden Wealth launches today the seventh edition of its flagship Global Family Office Report for 2021, the seventh agenda-setting and benchmarking report since its debut in 2014. However, for the first time, Campden Wealth has introduced three regional reports covering Asia, with Raffles Family Office; Europe, with Deloitte Private, and North America with the Royal Bank of Canada, to provide richer and more granular analysis.
The reports were based on statistical analysis of a record number of 385 surveys with family offices worldwide, with 20% from Asia-Pacific, 28% in Europe and 46% from North America.
Click below to find out more about the reports and stay with CampdenFB as we explore the findings.