The generational wealth transfer taking place across North America is prompting an increase in the amount of capital being allocated to the private markets, a new survey shows.
Younger generations inheriting family office control and wealth are more intent on deploying it to areas like private equity and real estate and doing direct deals, according to the Bank of America Private Bank’s family office study, which was released on Wednesday.
In addition, younger generations are approaching how they make philanthropic donations in a different way.
The study found that a whopping 87 percent of family office wealth is yet to be passed on to the younger generation, but that 59 percent of it is going to move within the next decade.
Elizabeth Thiessen, head of family office solutions at the bank, said that: “Family offices are underpinning the $124 trillion wealth transfer that we are starting to see unfold, and that has lots of downstream implications.”
The data show that almost three quarters of the 335 families surveyed expect a complete shift in their missions to come with the transfer.
Part of that is being driven by increased allocations to hedge funds and private equity, which introduce a new layer of complexity to the family office, she argued.
“As families invest more into alternatives the downstream effect is greater complexity in the number of accounts that they are managing and the payment activity that goes with that,” she said.
A direct implication of the increase in the number of accounts is higher levels of fraud and cybercrime, said the report.
The data also show that 85 percent of family offices continue to generate income from founding businesses. Thiessen said that principals in single family offices with over a billion dollars in assets are focused on ensuring the family office itself is running as an institution.
“There is a very intentional focus of late for families to try and get the same focus for the family office as they do for the founding business, as they get their heads around infrastructure, visibility, control, and secure payment execution,” she said.
Changing Face of Philanthropy
Additionally, the report found that because younger leaders tend to prioritize social impact, just over half of family offices expect philanthropic goals and strategy to play a greater role following generational succession.
But the way that younger generations think about philanthropy is changing, with artificial intelligence now playing a part in how philanthropic enterprises operate.
Melanie Schnoll Begun, who leads Morgan Stanley’s philanthropy management team, said that figuring out how the new generation will engage with philanthropy is a crucial step in family office strategy planning.
Prior generations engaged at the board level as part of well-established enterprises that intended to keep their philanthropic foundations operating in perpetuity, but that is changing, said Begun.
The question younger people have now is whether some of this responsibility, like research or review, will be taken over by AI. “A lot of this is very concerning for younger generations as they think about what their role in philanthropy might be, how they can demonstrate their leadership skills, and how do they show up to these big family opportunities and demonstrate that they're prepared to step into the family's wealth,” she said.
