Focus on process, capital growth, and impact investment
- 70 percent+ want to ensure the longevity of their family office
- 66 percent aim to grow capital vs 21 percent wanting to preserve capital for future generations
- 61 percent targeting returns of 6–10 percent next five years
- 43 percent have made impact investments
Wealthy Hot Spots
- 41 percent of wealthy family office in NSW – average wealth $1.12Bn
- 31 percent of wealthy family offices in Victoria – average wealth $1.04Bn
Growth and longevity are two of the key themes in a new survey of Australian and Asian family offices from KPMG Australia and The Table Club. The findings highlight that wealth is firmly in the hands of first and second-generation families – with 66 percent focused on capital growth in the next five years. Other results call out the challenges of managing risk and delivering ongoing growth and, more broadly, the rise of the family office during and despite the COVID-19 pandemic.
Completed in Q1 2021, Wealth in Transition – family offices in plain view is the result of a research partnership between KPMG Australia and The Table Club (TTC). It examines more than 80 family offices in Australia, Hong Kong, New Zealand, and Singapore from both quantitative and qualitative engagements, focusing on the wealthiest 500 individuals, Single Family Offices (SFOs) and Multi- Family Offices (MFOs), the organisations that run a number of family offices.
Robyn Langsford Lead Partner Family Business at KPMG Australia said the report shows that family offices are evolving quickly and that both first and second-generation families are focused on the longevity of their office - and on continuing to deliver capital growth. “Notably, the period of the survey, December 2020 to January 2021, was one of abnormality due to COVID-19, and traditional market assumptions were tested,” said Robyn Langsford. “Central bank intervention and massive fiscal stimulus turned a global economic shutdown into one of the strongest bull runs of the 21st century, proving that it is imprudent to ‘bet against the Fed. The growth that family offices achieved in the period is a standout.”
She said the overall findings reflect the important role of family offices as a vital part of the Australian and Asian economies. ”First and second generations continue to dominate family offices. They are on the front foot – responding to the need for more formal governance structures and recognising the benefits of bringing in outside human capital to help manage growth and strategy. The key skill will be in their maintaining control and ownership through subsequent generations.”
“Our aim was to learn more about the evolution of family offices in the region, and to understand how participants were managing macro challenges,” said James Burkitt Founder of The Table Club the private membership group founded in Australia in 2009, connecting over 1,300 family offices/Ultra High Net Wealthy Individuals (UHNWI) across ten geographies. “We also wanted to capture the granular detail across a sizeable sample of family offices to unveil secrets of success.”
Ms Langsford said that it is often thought that the family office is created due to demands from second generation family members. “However, according to the survey results, more family offices are being set up by the wealth originators, aware of the importance of having structure to support the management and subsequent transition of wealth. Fewer than one fifth of respondents were managing their wealth for only one generation whereas over 30 percent were supporting three generations or more.”
Notably, in one case, more than four generations were being served by the family office. Over 90 percent of respondents also reported working inside the family office or as part of the wealth management process. Of this group, the most common role (37 percent) was that of the Chief Executive Officer (CEO), with over 40 percent of respondents being either the Chair or member of the Family Board.
James Burkitt said: “In line with the data collected during the KPMG Wealth in Transition survey, over 60 percent of the TTC 500 primarily generated their wealth in the traditional asset classes of Property, Investment, (which includes operational businesses, private equity, credit and other asset classes), and Financial Services.”
Only 125 (25 percent) of TTC 500 members had investable wealth estimated to be more than $1 billion. A further 105 members (21 percent) had an estimated wealth between $100 million to $200 million, with the majority of TTC 500 members having wealth between $200 million to $1 billion.
Wealthy Hot Spots
Sydney in New South Wales and Melbourne in Victoria remain the centres of wealth in Australia, with over 70 percent of TTC 500 primarily residing in these locations. Unsurprisingly, the wealth generation in these locations was largely driven by Property and Financial Services. These locations are also home to the vast majority of multi-generational family offices, although still wholly 85 percent of TTC 500 members are primarily represented by the first or second generation.
- 41 percent of wealthy family office in NSW – average wealth $1.12Bn
- 31 percent of wealthy family offices in Victoria – average wealth $1.04Bn
But the wealthiest State for TTC 500 was WA at average wealth of $2.53Bn which also had the fastest growth in wealth at +31 percent. The largest sector of wealth generation was Property and Construction with 30 percent of TTC 500 members in that industry followed by Investment at 18 percent and Technology at 14.4 percent.
Key ‘Wealth in Transition’ report findings
COVID-19 has not slowed the family office
Family offices anticipated the shock to asset prices brought on by the initial stages of COVID-19 and were well placed to capture opportunities that arose. Over 30 percent reported an increase of greater than 10 percent in the value of their portfolio in the period to December 2020.
Mission and Purpose first
Over 70 percent of respondents want to ensure the longevity of the family office to serve the needs of at least two or three generations. If there are already funds to support the next generation, a purpose gives everyone the drive to keep it growing.
The family office is professionalising
The family office is now being recognised as a preferred structure for family wealth management – and seen as a business to be managed like any other.
Family offices are ready for risk
Family offices are expecting to increase their exposure to risk assets in the next 12 months and continue to benefit from supportive Australian Government monetary policies. Family office is now being recognised as a preferred structure for family wealth management and is seen as a business to be managed like any other.
Succession stresses are universal
The issue of who will lead and how can be just as complex in the family office as in a family enterprise. While it is an issue that cannot be ignored, fewer than 40 percent are prepared. Family office founders are concerned with what the impact ‘dilution’ of ownership and control will have on the future of the family office. Family office inheritors are concerned about having clear expectations and understanding what the role will require.
What lies ahead – status of advanced plans for succession
- Fewer than 17 percent suggested that succession transitions were occurring.
- 22 percent felt they were ‘very prepared’ in their succession thinking.
- More than 35 percent said they were ‘somewhat’ prepared.
- Nearly 20 percent confessed to being ‘not prepared’ in any way, however, this was also a reflection of the relative ages of those in the next generation.
“By way of comparison, in a survey of family businesses conducted by KPMG, released in 2018, we also found the preparedness of families for succession of their family business was varied,” said Robyn Langsford. “In general, planning for a change in management was much further advanced than a plan for the transition of the family’s ownership of the business. Many indicated then that they had thought about the process, but 45 percent suggested that no formal plans had been made. Whether the succession involves the transition of ownership, management and control of an operating business, or the running of a family office, there remains a tendency to defer action until forced. That needs to be addressed.”
ESG and ‘conscious capitalism’
As ESG has driven corporate culture and influenced institutional investment, family offices are becoming increasingly conscious of building ESG processes into their investment decision making.
“We noted that 43 percent had made impact investment decisions, reflecting the growing trend to ‘conscious capitalism’ and social license issues as being important to family offices,” Robyn Langsford said. “That’s also a significant finding in reflecting the broader trend towards including ESG in planning.”
For further information
Marjorie Johnston
KPMG Communications
0407 329 430
mjohnston4@kpmg.com.au
