Impact Investing and the Roles of Family Offices: Sustainable and Responsible Investment Strategies

Introduction

Compared to the EU and North America, family offices in Asia are presently still in their initial stages and are developing relatively slowly and gradually. Although the speed of Asian wealth accumulation is much faster than that in Europe and the United States (DBS, 2018), the wealthy Asian families generally have a low acceptance of the family office concept. Compared with other regions, family wealth in Asia is a less transparent subject. Privacy is seen as crucial in Asia, so wealthy families attach great importance to the security and confidentiality of wealth (Forbes & Ping An Bank, 2020). It is common for family leaders to spread their assets to different institutions and financial groups. As a result, it is difficult for any institutions or members to know the real scale and scope of family wealth. They prefer to personally entrust the materialized wealth to large financial institutions or wealth management institutions, and pay less attention to family enterprises, family spiritual and cultural inheritance and family governance. Most family offices are still part of the family business. Family interests and their business involvement are usually intertwined, and in rare instances would one find family businesses run independently of their owning family. The decision-making mechanism of Asian family offices is usually dominated by family members, with few non-family members participating. However, due to the rapid accumulation of wealth in recent years, the asset management scale of family offices in some emerging regions is improving and many are beginning to invest in the market.

Europe is the origin of family offices, with a mature market and a remarkable number of service institutions. Family offices are mostly concentrated in financial centers such as Britain, Switzerland, and Germany. In terms of the types of services, it mainly focuses on issues in the fields of taxation, accounting, and justice, where they assist the rich families manage issues of wealth management and inheritance of enterprises, assets, and core values (AFFTA, 2020). Both the volume and value of family office deals involving Europe – whether as the target location or origin of a transaction elsewhere – are now running at record levels. The total number of family office-backed real estate and direct investments within and into Europe in 2021 was 934, surpassing the previous high of 901 recorded in 2019 (PwC, 2022).

Family offices in North America started later than in Europe, but developed rapidly. North America is home to many strong economies. Wealthy families and high-net-worth individuals throughout the continent are becoming more and more familiar with the family office concept and there are an increasing number of family offices set up in North American countries. At present, the scale of asset management ranks first in the world. The service mode has gradually developed from the initial family internal management to the operation and management based on the third-party organization. European family offices pay more attention to charity and generally set up charitable foundations in families (AFFTA, 2020). As the rich families in North America are younger than those in the European market, they pay attention to the introduction of new information technology in the service field.

A real family office is more like a comprehensive family housekeeper. Financial and non-financial businesses are involved, and it is professional and confidential, which can help family members enjoy and focus on their own lives. At the same time, for multifamily offices, it is a platform to communicate. Through sharing with other families, they can obtain first-hand information on investment channels. In essence, a family office fulfills the role of investment, trustee, administration, and financial management (Ian & Ogier, 2010).

Of the several applications of family offices, the investment function is the core service of most family offices. The family office can evaluate each investment and determine whether it fits within the investment strategy guidelines and identify underperforming investments and asset classes that the portfolio is overweight in. Whether or not the family structure requires the family office or its members to act as trustees, in many cases, the family office will act in this role. Unquestionably, the key to a successful family office is efficient administration. Family offices need to provide administrational support to the family as cost effectively and as simply as possible; collate and process various reports, such as risk profile reports and consolidated investment reporting, with live feeds in, from the various investment houses and so on.