Family offices want to have investment portfolios like those of institutions and that aspiration continues to influence their structure and hiring.
In their quest to be more sophisticated investors by, among other ways, investing in more alternative asset classes, 60 percent of family offices have built a CIO-led investment team, formed investment committees and created investment policy statements, according to Citi Private Bank’s 2024 family office survey. The bank surveyed 338 family-office clients, up from 126 offices two years ago — a sign that the number of family offices and their interest in learning about one another is increasing.
Hiring a good in-house CIO and investment staff is costly. Most family offices don’t have the scale to justify the expense and Cit’s survey affirmed that. According to the report, 39 percent of family offices with assets under management below $500 million but just 22 percent with more than $500 million in assets didn’t have one. As a result, offices with assets below $500 million were 50 percent more likely to have an outsourced CIO (12 percent compared to 8 percent).
Families that created extreme wealth and preserved it for at least three generations were more likely to have a chief investment officer; 73 percent had a CIO while 57 percent of first- and second-generation families had one.
“This is consistent with our experience of many first-generation families, who are often keen to take a hands-on approach to investment management and are thus reluctant to cede control to professionals. As wealth and the family become larger and more complex over time, however, this typically changes,” the Citi report said.
Three-quarters of the family offices surveyed said they are investing directly in companies, something many leading institutional investors do. An in-house CIO and investment team would presumably take on the responsibilities of sourcing and choosing direct deals, which are on the rise. Almost half of family offices have increased their direct investing and 13 percent said they significantly increased it in the last year (33 percent said they maintained the same level of activity). The increase in direct investments was expected, at least based on Citi’s 2023 report, when 66 percent of respondents said they wanted to deploy more capital directly.
Still, while family offices professionalize and hire more investment staff they also collaborate more with external partners. The only two services provided internally at a majority of offices were Investment management (54 percent) and reporting (62 percent). All others were done externally or jointly.
More institutional investors are turning to outsourced chief investment officers and family offices are doing the same. On average, Citi clients said 48 percent of assets are managed solely by the office, 32 percent collaborated with external managers and 20 percent was managed exclusively by an outside party.
“The proportion of family offices that rely on external resources appears to have grown slowly but surely. This is probably driven by the complexity of the investment function, the desire to further professionalize family offices, and the greater understanding of their individual needs by service providers,” Citi said.
