Over the past thirty years, the financial services industry has been transformed by demands for enhanced transparency, resulting in increased levels of accountability and regulatory oversight. Until recently, the family office and private wealth sector has managed to maintain a relatively low profile and steer clear of encumbering regulatory oversight. But with rapid growth in the population of high-net worth and ultra-high net worth individuals over the past decade – in some cases at a rate faster than general population growth – family offices are now becoming the subject of increased scrutiny.
The notable rise in the fortunes of those in emerging markets such as Asia and the Middle East has contributed to this growth, with these economies taking advantage of innovations in technology and creating new businesses. Researcher Campden Wealth estimates that family offices now control over $6 trillion dollars’ worth of assets. The number of family offices worldwide has doubled since the start of the century, with estimates of 10,000 private wealth management operations holding $750 million of investable assets, on average.
The changing family office landscape
A recent report by CNBC claims family offices are now “going on the offensive”, citing a survey from leading global investment firm KKR. While institutional investors often shy away from alternative investments such as hedge funds and private equity, family offices are increasing their commitments in these spaces – expanding their investments in alternative assets in recent years from 42% of their portfolios to 52%.
Meanwhile, family structures are themselves undergoing change, with the modern family office becoming less likely to revolve around the traditional activities of a single patriarchal figure. New generations are emerging with a leaning towards investment in greener practices, local economies, and emerging technologies. ESG considerations and ‘impact’ investments are more relevant than ever before, and family offices have been key players in investing in start-ups over the last decade. Investments have a longer time horizon for family offices, who are interested in seeking benefit over multiple generations, and this “patient capital” can support new businesses through a whole lifecycle, as opposed to other investors who often aim to make a return within just five to ten years.
The increasing importance of reputation in family offices
While traditional M&A activity has slowed, significant growth in the number of family offices with available capital, along with changing economic conditions and family structures, has led to an increase in investment activity from family offices. As a result, it has become essential for family offices to focus on managing their reputational due diligence, and accurately mapping potential digital vulnerabilities that could harm their reputations.
With new and emerging technologies such as facial recognition searches and deepfakes becoming more widespread, the reputational threat to family offices is more pronounced than ever. Deepfake attacks can cause considerable reputational damage, legal implications, and financial losses, as well as straining relationships with stakeholders and partners. A recent case in Hong Kong cost a company $25 million after scammers set up a business call populated with deepfake personas purporting to be the company’s Chief Financial Officer and key staff, convincing employees on the call to transfer money to fraudulent accounts. Mitigating risks such as this by staying informed and monitoring your online presence can be essential to preserving a family office’s reputation and financial health.
Taking control of the narrative
Family offices have traditionally avoided the spotlight, but as they continue to play an increasingly prominent role in the economy, making more impactful investments in both public and private markets and needing to attract partners to work with, this may become untenable. Their story is already being told for them, somewhat, as they are perceived to be “going on the offensive”, and interest in high-net-worth individuals is at an all-time high in the current political environment.
As family offices become household names, it is imperative for them to protect their reputations and place the management of their own brand narratives at the forefront of their operations. This is increasingly evident in prominent family offices such as that of the Walton clan, the heirs to Walmart, whose proactive approach to managing their reputation includes highlighting their investments in sustainable fisheries, the arts, and green initiatives.
Striking the balance between controlling the narrative around their more prominent, impactful role in society, while preserving their privacy, is a growing concern for family offices. Preserving privacy is essential in maintaining sustainable control over a narrative and ensuring exposure to harmful actors is limited. Once information is in the public domain, its circulation becomes more difficult to manage, and serious cases of privacy breaches, such as personal details or frequented locations being made public, can result in online harm becoming real-world harm. Cases of hostile media leveraging online content, such as details about wealth or social media posts, to paint an unflattering picture of an individual or family, have served to highlight the importance of protecting privacy in today’s world.
As increased attention turns to family offices who are taking a more active role in investment markets, it’s more important than ever for them to take a proactive approach to online reputation management. When planned carefully and carried out effectively, this can enable family offices to amplify their values and monitor sensitive digital vulnerabilities, while protecting their privacy. In today’s world, taking control of the online narrative is vital for family offices to remain protected against reputational damage, legal issues, and financial losses, while safeguarding their public reputation and relationships with stakeholders and partners.
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