SUMMARY
At Citi Private Bank’s 2023 Family Office Leadership Program, we explored key ideas for family office heads and principals striving to navigate uncertainty and perpetuate legacies.
At Citi Private Bank’s 2023 Family Office Leadership Program, we explored key ideas for family office heads and principals striving to navigate uncertainty and perpetuate legacies.
$434 billion - wealth overseen by family offices attending our Family Office Leadership Program 20231
Since 2016, Citi Private Bank’s annual Family Office Leadership Program has provided a dynamic forum for family office and family heads to hear cutting-edge insights, share experiences and build connections with each other. The 2023 edition saw 140 participants from 24 countries – who represent $434 billion in wealth – gather in Ossining, New York.
Over three days, delegates heard from prominent thought leaders and practitioners on topics including economics and investment strategy, innovation, family leadership succession, philanthropy, estate planning, technology, cyber security and much more.
Elevated inflation and recession fears have made for challenging conditions for global investors. Sharp monetary tightening has created painful losses in bond portfolios but also potential opportunities. With weakness likely to affect further areas of the economy, there may be tactical potential in high-quality fixed income, such as in US investment-grade fixed income.
Short-duration index-linked bonds could be useful against further inflationary surges. Ahead of an eventual recovery, we see relative value in areas such as US small- and mid-cap and emerging market (EM) equities. A weakening US dollar over the coming years could also increase the returns on EM and other assets.
Given the substantial assets typically under their control, family offices are increasingly a target for cyber criminals. This calls for a proactive and preventative approach, formulated in a comprehensive cyber security plan. The first step is an audit of a family office’s people, processes and technology.
People are often the weakest link in cyber security, so thorough ongoing education about threats and best practices is essential. Among the key risks personnel need to be aware of are:
Experience highlights seven vital lessons for navigating these complicated challenges:
Family enterprises seeking capital in current market conditions are looking to maximize value and find the right partners and strategies, aligned with the goals of their owners. Successful partnerships require consideration of the sectors and markets you are targeting, whether you are seeking a minority or majority stake, and whether you’re pursuing active or passive strategies.
Business readiness is essential to maximize value in the current market, including strong, audited financials; a compelling competitive positioning strategy; strong management team, business plan and good governance; and absence of (or transparency to) any major liabilities, whether legal, environmental or financial.
Families should prepare by understanding the sale process, establishing clear goals for selling the business, determining how much control they are willing to give up and how much involvement they want post-transaction.
In a rapidly aging world, keeping people well rather than simply treating illnesses is vital. Combining technologies such as artificial intelligence (AI), machine learning, and genetic and wearable data could enable preventative and preemptive action. Consumer-oriented tech companies with disruptive potential are starting to enter healthcare.
Challenges may include privacy concerns, regulations, monetization and consumer uptake. Potential portfolio opportunities include back-end medical data storage and pioneering techniques like liquid biopsies.
During 2022’s economic uncertainty, commercial real estate investment volumes fell sharply. Rate hikes have forced up borrowing costs, creating pressure on maturing loans looking to refinance near term, especially for those whose collateral is retail or office. Potential recession risks further dampening demand.
Commercial occupancy remains lower in the US and UK following COVID, whereas in continental Europe and Asia, the return-to-office trend is greater. Despite US housing shortages, repurposing commercial buildings to residential is often expensive and impractical. But appetite for better facilities and greener offices is set to grow.
US industrial real estate demand could benefit from re-industrialization policies and infrastructure spending. The transition to green energy could also spur demand for industrial properties.
Private tech company valuations are set to potentially head lower in the next 12–18 months. Defaults among 1,000 or more may occur as they fail to secure financing. Investors may be overemphasizing profit versus growth amid today’s conditions. In time, there may be potential for value creation as AI reduces headcount and other expenses. Among other things, family offices assessing private tech investments should consider the “three Ts”:
Artificial intelligence has increasingly captured the world’s imagination since late 2022. There is growing conviction that generative AI could substitute for or enhance human labor in a wide range of fields. Potential benefits include more precise medical diagnoses, personalized lessons for students and better natural disaster forecasting.
Genetic testing companies are using AI and machine learning (ML) to generate customized suggestions for diet and exercise through analysis of customers stored genetic data. Globally, AI could drive trillions of dollars of market value creation via salary and expense savings, as well as workforce rationalization.
The sports industry is growing, particularly outside of the US, Streamed events and other content are reaching more consumers thanks to digital technology, broadening the opportunities for franchises and leagues. Sports-related media, technology, betting, hospitality and real estate offer further possibilities.
Given this profile, there are increasing opportunities for funds and institutions to invest in sports. No longer are sports franchises seen as “trophy” assets for prestige and status. Private equity inflows have risen over recent years, attracted by the business underpinnings of loyal fan bases, media rights, merchandising and venue operations. This could keep driving sports valuations higher over the coming years.
The cost of renewable power has dropped by over 80% since 2010, facilitating a worldwide shift toward sustainable energy use.3 However, there is a long way to go. Battery costs remain high and the increased use of copper in renewable energy production presents environmental challenges.
There are also logistical questions around the recycling of solar panels and batteries which have life cycles of around 10–15 years. Many challenges to development and rollout remain, and this requires support and financing from institutions, family offices and individual investors.
The most resilient families define their collective values as well as a guiding vision that flows from that. In their business activities, they recognize the need for constant innovation and adaptation. The next generation only succeeds them in the business if they are both willing and able to do so.
Maintaining an emotional link between the family and the business is an important element, which can get more challenging with the passage of time. From this can come the realization that they are stewards of family wealth, with responsibilities to those who follow them, rather than owners who can do as they please.
To learn more about Citi Private Bank’s Family Office Leadership Program and our range of services for family offices, please contact us.
We advise family offices of every size and structure and throughout the world. Whether you have or run a family office – or are thinking of establishing one – our dedicated specialists can guide you at every step.