Manuel Fuertes
December 2, 2024
ALTERNATIVE INVESTMENTS
OPINION by Manuel Fuertes, CEO of Kiatt.
The family office sector is at a key moment in its history, undergoing a true transformation and gaining greater prominence in the world of investments and transactions. Although they are not always fully identified due to their members’ desire for privacy, according to PwC, there are currently 8,272 family offices worldwide, 166 of which are located in Spain. This is a sector that strengthens year after year. In fact, this market is expected to grow from $138 billion at the end of the year to $233 billion by 2029, with a compound annual growth rate of 11.05%, according to Mordor Intelligence data.
If we analyze the type of investments we make, in recent years, family offices have opted for more active investment, with a more dynamic strategy adapted to the international context. This landscape is shaped by the anticipation of changes in interest rates, inflation, and geopolitical uncertainty.
An example of these strategies is the increase in direct investments in projects, a rising trend in the sector. This is confirmed by a survey by BNY Mellon Wealth Management: as of June 2024, 62% of family offices had made at least six direct investments in private companies, an increasingly clear sign that they prefer to operate as their own private equity funds.
Current trends in family offices: Real estate, technology, ESG criteria, and private markets
Among current trends, we can highlight that the real estate sector maintains its relevance as an asset, though its position as a primary investment strategy is being challenged by market uncertainty. In this context, family offices are showing a growing interest in alternative investments, particularly in startups, tech companies, and projects with ESG criteria.
This year, investments in private markets have increased, especially those allocated to venture capital and private equity. Investment portfolios now combine private assets, secondary assets, and digital assets. Yes, crypto-interest has surged this year, with 33% of family offices actively investing in cryptocurrencies.
However, the sector is not only growing due to the number of active family offices but also through the expansion of their structures and international presence. Additionally, there is greater sophistication in operations, talent, and partnerships.
Greater sophistication and professionalism
This sophistication is reflected in the increasing professionalization of family offices, which are incorporating highly qualified professionals to design more complex investment strategies and adopt standards typical of high-level financial institutions. This professionalization entails a greater emphasis on governance. Family structures, now more complex, require solid criteria to safeguard family values.
The sophistication of these investment vehicles also involves using innovative technology to streamline operations and improve decision-making through complex portfolio management systems and data analysis tools.
Another timidly emerging trend is club deals or joint investments. This type of investment allows access to exclusive opportunities, with greater control and participation. Opportunities multiply with contact with other investors, sharing ideas and projects. Without the right partner, precise structure, and sector knowledge, many investors will miss out on private and exclusive investment opportunities.
Family offices in Asia: Diversification, government support, and altruistic investments
Due to our presence and years of experience in Asia, we can affirm that family offices in China and Japan are also at a crucial moment, though they cannot be analyzed through a Western lens or compared to our investment structures. They do not face the same challenges as family offices in the US and Europe. Their investments are spread across well-diversified portfolios, both in assets and investment locations. Africa and the Middle East are notable as investment destinations with significant Asian presence. It is also common for Asian family offices to lean toward science-based alternative investments, such as those in spin-offs from prestigious global research centers like Oxford, Harvard, MIT, or Stanford.
Another feature is their prudent investment strategies, with an observed increase in capital directed toward equities and fixed income in recent years. Real estate is also important to them, as it not only provides patrimonial continuity but is also effective long-term and can be part of an inheritance.
On the other hand, one cannot ignore the strong regulatory framework that family offices in Asia face, but they also enjoy a significant advantage: government support for these investment vehicles. For example, Singapore offers tax incentives through the Global Investor Program (GIP). In Hong Kong, measures have been implemented to facilitate the creation of family offices, such as capital gains, tax exemptions for asset management and streamlined visa processes for sector professionals. Meanwhile, China has developed policies to encourage the growth of local family offices, with special zones offering tax and regulatory benefits.
