How Technology is Helping Level Up Family Office Operations

Family offices face an uncertain investment outlook. In the past year alone, they have had to contend with a pandemic, war in Europe, an energy crisis, rampant inflation, and volatile stock markets. There are also growing concerns around data security and succession planning, areas where family offices may be able to exert more control.  

Find out how family offices can use technology to futureproof their operations and help them navigate today’s challenging market environment.  

1. Investment allocation

With a need to strike the balance between preserving and growing wealth, traditionally family offices have favoured conservative investment allocations. But in the bullish markets of recent years, family offices have been more willing to push themselves up the risk curve to achieve higher returns. 

According to Campden Wealth’s Family Office European Report 2022, public equity remains the largest asset class, accounting for 31% of AUM for family offices. But they note that private equity is catching up, now at 27%. In the report, 45% of family offices said they intend to increase allocations to private equity, venture capital and direct investments.  

With growth in alternative investment allocations, portfolio complexity is increasing, often spanning multiple asset classes, geographic markets, and investment structures. Sourcing the required data and manually transposing it into visually compelling reports that provide the insights that families want can be extremely laborious. Technology can now relieve much of this burden, with the ability to automate data sourcing from multiple sources and produce consolidated reports at the click of a button. 

2. Investment monitoring

One of the top governance concerns for family offices is investment monitoring. At a time of market volatility, it is critical that family offices can make informed and strategic investment decisions to preserve capital, grow wealth and maintain control over investments.  

Many family offices are now managing increasingly complex portfolios that include private equity, hedge funds and real estate, which can make monitoring the performance, risk, exposures, and liquidity of these investments difficult.  

Family offices that want to develop a strong investment governance framework need a system that enables daily limits monitoring, with alert notifications and pre-warning levels for any performance, risk, liquidity, and exposure metrics.  

3. Investment risk  

In the Campden Wealth report, 75% of family offices cited investment risk as their primary concern for the next three to five years. Family offices of all sizes will need a sound risk management framework with effective internal controls.  

Against this backdrop, many family offices are exploring advanced models and systems once considered the preserve of institutional asset managers, acknowledging that with a strong risk management framework they will be much better prepared to withstand market disruptions. Without proper risk processes and governance, family offices unable to escalate and decisively act upon risk issues and to manage them successfully through market cycles. Alongside the implementation of a data warehouse and risk system, risk and governance processes must be an integral part of a family office’s overall approach to risk. 

4. Succession planning  

Effective succession planning is essential to ensuring the longevity of a family office and the family legacy. It makes developing succession plans a key priority. But with many family offices only being set up in the last 20 years, not all have experienced a transition of wealth to the next generation.  

Establishing this relationship with the next generation now also allows family offices to lay a foundation of knowledge when it comes to investment and financial advice. Relationships with the next generation can be solidified by adopting digital tools and platforms. A system that can give proactive reminders to maintain communication with individuals, can ensure that heirs are kept up to date with the valuations and performance of any assets they have a stake in already. 

5. Cybersecurity 

40% of European family offices have experienced at least one cyberattack in the last 12 months. Family offices have become big targets for cyber attackers, not just because of the vast wealth that they manage but because they are known to have traditionally underinvested in the necessary defences to prevent such attacks.  

Today, family offices’ data is safer in the cloud than on an in-house server thanks to robust embedded security controls helping to counter today and tomorrow’s cybersecurity risks. Any IT infrastructure, particularly when it comes to asset information and investment data, needs stringent cybersecurity protections, with sophisticated detection systems, and strong authentication and encryption techniques to protect user data. Data should be encrypted both in transit and at rest.  

How can family offices implement new technology? 

Family offices need a structured plan to implement technology. They should start by identifying their needs, such as whether they want to improve investment analysis and workflows, streamline the production of reports, or prepare for a new generation of wealth owners – or a combination of all three. 

Find out how family offices can use technology to solve their biggest data management and reporting challenges in our latest whitepaper.