A New Generation Is Pushing Family Offices Into Crypto

Don’t look now, but family offices are becoming a generational battleground when it comes to the merits of cryptocurrency investing.

In late 2021, BNY Mellon Wealth Management surveyed 200 key personnel at family office firms, including 56 single-family offices and 144 multi-family offices with at least $150 million assets under management. The survey found that 77 percent of family offices have some level of interest in or exposure to cryptocurrencies. Among those who have already deployed capital to the digital-asset class, two-thirds said they would probably increase crypto holdings in the next year or two.

Sixty-one percent of the early adapters use exchange-traded funds for their crypto transactions, while 59 percent use Coinbase-like trading platforms and 42 percent use cold wallets, which are physical devices that store cryptocurrencies offline. A small portion of family office investors are also betting on crypto startups through venture capital firms or private placements. 

The need to engage the next generation of family office leaders and investors is a major reason why family offices have made the move into crypto. According to BNY Mellon Wealth Management, 64 percent of family offices surveyed said that cryptocurrency “speaks to the aspirations of the next generation of investors,” while 45 percent indicated that interest from future family office leaders is a major motivation for them to get more involved in the new asset class. Other key reasons include the desire to keep up with a new investment trend and the underlying investment value behind cryptocurrency. 

The survey also found that 86 percent of family office firms think that the next generation of leadership is more likely than the current one to invest in decentralized finance, including cryptocurrency, crowd funding, and peer-to-peer lending. At the same time, 83 percent expect the next generation to be more likely to at least explore such opportunities. Almost all of those surveyed believe that this “generational dichotomy of values and interests” is an important concern, due to the potential threat it poses to succession planning.

According to Vincent Hayes, global head of family office and international wealth management at BNY Mellon Wealth Management, there are two layers of succession planning in a family office. The first involves the current family office owners and their children, while the second consists of family office executives who usually have close ties to the current owners. In both layers, a generational divide in social values and investment philosophies tends to make the hunt for family-office management replacements extremely challenging.

“The next-gen family members are more open, more willing to collaborate, and definitely more transparent when it comes to the decision-making process,” Hayes said. Therefore, it is crucial that next-generation executives develop their portfolio strategies in the same manner, which includes taking a serious look at crypto and ESG investments.

The survey report agreed that ESG will play a large role in the investment choices made by the next generation: “Family offices are in near-universal agreement that Next Gen family-office leadership will be more focused than current teams on decentralized and more socially responsible investments, even if it means forgoing some profit for the sake of social good.”

But some of cryptocurrency’s intrinsic characteristics are at odds with the next gen’s investment values. Crypto mining, for example, is notorious for its energy-intensive nature and raises considerable environmental concerns. Yet 74 percent of family offices expect the future generation to focus more on environmental, social, and governance investments, according to the survey. This means that family offices will need to strike a delicate balance when trying to engage with their future successors.