Evening Brief – 04.29.24
The Family Office
J.P. Morgan has been working with family offices for over 200 years, but a new report examines changes among its ultra-high-net-worth clients when it comes to managing investments, governance, succession planning, and operations.
J.P. Morgan Private Bank surveyed 190 global family offices with an average net worth of $1.4 billion to obtain views from family office principals and professionals, providing a quantitative perspective on global family office operations.
Family offices are broadening their financial portfolios, with roughly 80% collaborating with outside investment advisors. Portfolios now average a 45% allocation to alternative assets targeting an 11% return, with private equity and infrastructure accounting for 86% and 9%, respectively.
Family offices are also developing core, liquid portfolios, allocating 26% to public equity and 20% to fixed income and cash, on average.
“This represents a multi-year shift we are seeing among many family offices,” said Jamie Lavin Buzzard, head of investments and advice of the U.S. Family Office Practice. “They are more willing to take illiquidity risk, in order to achieve greater potential long-term returns.”
The research also discovered that the average annual operating cost for large, established family offices with $1 billion or more in assets under management is $6.1 million.
A growing number of family offices are turning to outsourcing to cut costs. Approximately 40% of small and medium-sized family offices with assets ranging from $50 million to $999 million outsource investment management to some degree.
Family offices in the U.S. and abroad have different personnel preferences for staffing and executive roles. Nonfamily members serve as CEO/president and CIO in 45% and 71% of U.S. offices, respectively, compared to 64% and 90% in international offices. Furthermore, 29% of U.S. offices have unpaid family members as CEO/President, compared to 7% globally.
Meanwhile, family offices are concerned about the next generation’s ability to inherit wealth, and 30% of respondents said they lack an organized approach for preparing the younger generation for this responsibility.
U.S. and overseas offices again took different approaches. Philanthropy is the primary technique used by U.S. family offices to engage the next generation, with one-third seeking external professional experience. Meanwhile, international family offices frequently attempt to incorporate younger relatives in the family business, typically in conjunction with outside job experience and cash for entrepreneurial enterprises.
In May 2023, JPMorgan Chase expanded its attempts to appeal to the ultra-rich by introducing 23 Wall, a new subsidiary built during the epidemic and named after the bank’s previous Manhattan headquarters. The team works with approximately 700 families worth more than $4.5 trillion in private capital.