Key Takeaways
- • Bank of America's family office study, Building for Generations, finds families typically hold 25% to 50% of their investment portfolios in alternative investments, with private equity and direct investments making up the bulk of those sleeves.
- • Fifty-nine percent of surveyed families plan to increase investments in private equity funds and private companies over the next three years, and 31% view ownership stakes as key tools for growing generational wealth.
- • Four in ten family offices hold sports investments, with 27% of millennial or Gen Z family office investors invested in sports versus 16% of Baby Boomer principals, according to Charles Simonds of Bank of America.
- • Only 27% of families have a trust distribution policy or guiding principles in place, even though 83% have named a successor to run the office.
- • Generational transitions, operating company budgets and rising compliance demands are pushing families to professionalize governance and hire CFOs, CPAs and other advisers.
Summary
Family offices are multiplying, and the leadership of many established offices is passing from one generation to the next, which is changing both how they invest and whom they hire. According to Bank of America's new family office study, Building for Generations, the industry's view of family offices as investors is likely to shift over the next few years. The study's data show families typically allocate between 25% and 50% of their portfolios to alternatives, including some more esoteric assets, with private equity and direct investments accounting for the bulk of those sleeves. Direct and co-investments in companies remain a top priority. Survey respondents said they source deals through their own networks, other family offices and private equity general partner firms.
Forward allocation intentions point toward further private market exposure. Fifty-nine percent of families plan to increase investments in private equity funds and private companies over the next three years, and 31% see ownership stakes as key tools for growing generational wealth. Next-generation family members are also expanding direct investing into sports teams, either directly or through funds, as many professional leagues have broadened rules governing private investment and minority ownership. Overall, four in ten family offices hold sports investments. Charles Simonds, family office strategist at Bank of America, said that 16% of Baby Boomer family office principals are invested in sports compared with 27% of millennial or Gen Z investors.
Complexity is rising for both newly formed and established offices. Simonds noted that generational transitions often increase cash needs because the next generation is typically larger, and that most new family offices have owners still actively managing an operating company, creating both an investment portfolio and an operating budget to oversee. "Managing the needs of the family, portfolio, and business are pushing more families to professionalize and bring on advisers," he said. The report finds a majority of families recognize that professionalization and governance can smooth operations, yet gaps remain: 83% have named a successor, but only 27% have a trust distribution policy or guiding principles. Simonds said that offices with operating budgets of $3 million a year or more require substantial support, and that recruiting CFOs or CPAs is necessary, since borrowing staff from the operating company is only a stopgap.
Succession planning also centers on education. Forty-nine percent of respondents call educating the next generation a key priority, and 64% rely on an annual or semi-annual family meeting to set investment priorities and align members. Other tools include investment committees and clearly defined investment and philanthropy goals. Simonds cautioned that meeting attendance can be spotty and that family members often focus on planning only around major transitions or liquidity events, though planning ahead is more effective. He added that concentrated assets, whether a business, sports franchise or trust, can be costly to break up for liquidity, and that planning and family education are the best mitigants.
Forward allocation intentions point toward further private market exposure. Fifty-nine percent of families plan to increase investments in private equity funds and private companies over the next three years, and 31% see ownership stakes as key tools for growing generational wealth. Next-generation family members are also expanding direct investing into sports teams, either directly or through funds, as many professional leagues have broadened rules governing private investment and minority ownership. Overall, four in ten family offices hold sports investments. Charles Simonds, family office strategist at Bank of America, said that 16% of Baby Boomer family office principals are invested in sports compared with 27% of millennial or Gen Z investors.
Complexity is rising for both newly formed and established offices. Simonds noted that generational transitions often increase cash needs because the next generation is typically larger, and that most new family offices have owners still actively managing an operating company, creating both an investment portfolio and an operating budget to oversee. "Managing the needs of the family, portfolio, and business are pushing more families to professionalize and bring on advisers," he said. The report finds a majority of families recognize that professionalization and governance can smooth operations, yet gaps remain: 83% have named a successor, but only 27% have a trust distribution policy or guiding principles. Simonds said that offices with operating budgets of $3 million a year or more require substantial support, and that recruiting CFOs or CPAs is necessary, since borrowing staff from the operating company is only a stopgap.
Succession planning also centers on education. Forty-nine percent of respondents call educating the next generation a key priority, and 64% rely on an annual or semi-annual family meeting to set investment priorities and align members. Other tools include investment committees and clearly defined investment and philanthropy goals. Simonds cautioned that meeting attendance can be spotty and that family members often focus on planning only around major transitions or liquidity events, though planning ahead is more effective. He added that concentrated assets, whether a business, sports franchise or trust, can be costly to break up for liquidity, and that planning and family education are the best mitigants.
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