2023 will not be about doing things wildly differently but rather, doing things right.
2022 was all about recovery, retention and regulation. Family Offices began to turn their attention away from the effects of macroeconomic factors and instead looked to grow their teams, introduce attractive bonuses to retain them and think about the likes of regulation and reputation management.
While I would of course love to open this 2023 predictions blog with a crystal ball, penning a picture of lots of exciting things for the year ahead, I think this year will be quite like the year before and perhaps, the year before that. At least its intentions will be. 2023 will not be about doing things wildly differently but rather, doing things right.
While Family Offices began to think about compensating their staff for the long-term, the huge strain on talent that we witnessed in 2022 will mean Family Offices will standardise their compensation, embed long-term incentive structures and professionalise their entire approach to recruitment.
This means rather than pushing out attractive job advertisements filled with false promises to attract talent quickly, Family Offices will devise professional compensation structures that incentive excellence and ensure longevity in their new hires. This will see the likes of carried interest, co-investment opportunities and long-term performance bonuses rise in popularity and for the first time, they will not just be offered to C-suite Family Office professionals but instead, anyone deemed critical. In a time like 2023, this could well mean everyone.
On a global scale, while we still live with the effects of macroeconomic factors such as the coronavirus pandemic, Brexit and conflict overseas, Family Offices have become accustomed to operating in times of uncertainty and are quite uniformed in their approach. Plan B contingency strategies have become commonplace and so whatever 2023 throws at Family Offices, R-word incoming, Family Offices will handle it as they have done before. They will pause, reflect and diversify.
2022 saw an elevated interest in the likes of agriculture, aerospace and robotics and while 2023 will surely see the introduction of yet another new and exciting asset class, Family Offices will look to diversify away from risky or poor-reputation areas and invest in traditional, safe arenas where track-record has already been achieved. This means divesting away from tainted geographical areas and industries and reinvesting in sub-asset classes within the likes of online retail, real estate and healthcare.
Real Estate giant Ortega offers a prime example of this strategy. While retail remains at the core of his business intentions, he entered 2022 with a $15.5BN real estate portfolio, something he had publicly diversified into as a result of the pandemic. Fast-forward to just a few days ago and it seems Ortega has opened the year 2023 with the acquisition of a $323M skyscraper in Seattle. Like many Principals, diversifying does not always mean investing heavily in the likes of cryptocurrency but rather, decentralising risk by spreading investments across multiple areas with precedents of high return. Crypto like many ‘new’ asset classes may well continue to play a very small role in Family Office portfolios but I envision this to fall into the category of fun – a small percentage for Principals to play with either for passion or simple curiosity.
Speaking of r-words again and while uncertainty is still in the air, one might argue that 2023 offers a glimmer of certainty that no year before it ever has and that is thanks to the knowledge that a recession is coming. The International Monetary Fund has forecasted a third of the world’s economy to be hit by a recession in 2023 with the US, China and Europe all experiencing a weakening of activity. While the aftershock is yet to be lived, Family Offices can plan for that certain future and invest cautiously to ensure every downfall is considered an opportunity. The Private Equity space will be a particularly interesting watch as following a decline during COVID-19 and a V-shaped recovery soon-after making it the most popular asset class of choice, it is now thought that PE may well benefit from a recession. Like any other investment decision, Family Offices will need to enter 2023 with an educated outlook and that’s something only attained by well-structured and high-performing teams.
Finally, the pandemic put Family Offices on a platform. I have spoken about this frequently at industry events and round-tables. Family Offices proved themselves to be the single most-fluid group of investors and served as the backbone of the global economy. By investing in start-ups to speed up the world’s recovery to the virus and redirecting production lines to meet the demand for ventilators, Family Offices very much kept the world running while much of it was forced to stop.
As a result, several hundred pandemic-billionaires were crowned and countries around the world began to see the potential of hosting these ultra-wealthy and professionalised families. Since then, more and more ‘Family Office hubs’ were added to the list each offering something slightly unique to the families they wished to serve. From tax incentives to co-investing opportunities, Dubai, Hong Kong, Greece, India and many more international players joined the battle to become a destination of choice for Family Offices and this year will be no different. In the first 10 days of 2023, Hong Kong has already publicly revisited its Capital Investment Entrant Scheme (CIES) to keep up with an increasingly popular Singapore and we can only imagine what else other countries have up their sleeves in 2023 to attract international wealth.
While hoverboards and time-travel are yet to feature in this predictions list, as I opened, Family Offices will not treat 2023 as an opportunity to completely re-strategize but rather, do things right. By professionalising family wealth, embedding long-term compensation benchmarks, retaining the right talent and decentralising risk, Family Offices will thrive in yet another era of uncertainty.
