Mathieu Villaume, head of private wealth for Luxembourg at IQ-EQ, says family offices have increasingly complex needs, and to meet them providers need a dedicated offering separate from fund administration – otherwise Luxembourg firms could see clients go elsewhere.
What trends are emerging in the family office sector?
Wealthy individuals and the family offices that serve them are becoming increasingly sophisticated in line with the globalisation of families and their assets. Indeed, family offices have more diverse portfolios and strategies than ever before. Previously they would likely focus on a single asset class or element such as alternatives or UCITS, but now family offices tend to have an array of listed assets, real estate and debt, which means upgrading operations and integrating new technologies for both operational and reporting purposes. Family offices are having to professionalise and adhere to strong governance practices in order to handle the growing complexity of family wealth management and mitigate the risks that come with increased cross-border exposure.
Further, family offices are needing to ready themselves with succession planning for the impending ‘great wealth transfer’, which will see trillions of dollars of family wealth pass between generations globally over the next two decades. In line with this, we’re seeing a number of additional trends among family offices as the next generation takes the helm of family fortunes. For example, there is a clear move towards ‘exciting’ private equity and venture capital opportunities; we’re seeing increasing emphasis on direct investing in private markets and private funds are fast emerging as a vehicle of choice in this regard. Also, more and more families are focused on Environmental, Social and Governance (ESG) matters and impact investing, and are embracing technology.
“This is where our offering is moving, to become a trusted partner – helping families with all aspects of their wealth and through every step of their journey.” - Mathieu Villaume, head of private wealth, IQ-EQ Luxembourg
How does this affect the future of Luxembourg’s financial industry?
In light of this family office evolution, Luxembourg’s financial industry needs to be able to provide clients with a wider range of services – especially given the increasing competition from other leading EU jurisdictions such as Ireland, particularly in relation to advances in technology and data handling. A lot of the financial players in the Grand-Duchy are now owned by investment funds whose strategy is global rather than focused on Luxembourg. Developing a national strategy is vital to ensure head offices don’t leave the country, ultimately taking transfer agency and central administration with them. Industry players in Luxembourg must also be careful not to focus too heavily on their own tools, such as building their own APIs with banks. Rather, we should work together to create an open API to help Luxembourg keep standing out as a leading international financial centre.
Regarding families’ increasing interest in private funds, Luxembourg stands strong with its well-established specialised investment fund (SIF) and the société de gestion de patrimoine familial (SPF) regime, which both offer great flexibility and efficiency. Also noteworthy is Luxembourg’s 2012 Family Office Act. Although it ultimately did not create a great deal of momentum but simply legalised an existing situation, we can still leverage it because there is no similar legislation in Europe. Lastly, Luxembourg is a jurisdiction of choice for setting up a family office and structuring family wealth because we have all the business partners, financial institutions, and hopefully in the future a technological edge, giving us the capacity to attract talent from all over the world.
How is IQ-EQ shaping its offering to meet its clients’ needs?
IQ-EQ has supported family offices and the ultra-high-net-worth community with an array of private wealth services for over 50 years, but earlier this year we launched our dedicated and holistic Family Office Services offering. This was developed in response to our family office clients embracing more sophisticated governance as well as international and multi-asset class investment strategies, and it encompasses both traditional fiduciary and administration services and more recent requirements such as ESG reporting, deal flow and regulatory compliance. It also includes our innovative IQ-EQ Cosmos investor reporting platform, which now offers a bespoke family office dashboard providing a complete view of family wealth. In addition, we’ve further developed our IQ-EQ CrossDeal platform, connecting investors to private deals in the alternative assets space.
In short, we are everywhere in the value chain – not just an administrator but a business partner, not only accounting but reporting, not just corporate services but deal introductions, not just tax compliance but tax efficiency. This is where our offering is moving, to become a trusted partner – helping families with all aspects of their wealth and through every step of their journey.
What opportunities and challenges lie ahead for family office service providers over the next five years?
The challenge and opportunity is to find the right balance between regulated structures and family office organisation. There is a need for sustainability in the wealth transfer process – we are working with not one family generation but three, which requires creation of a long-lasting environment, not one-shot SPVs and short-term solutions. In the US market for instance, family offices have been organised for centuries using trusts and endowments. They are not looking at assets or investments piece by piece but have a proper organisational strategy. Our future is helping our clients build that structure, particularly as family offices operate increasingly like institutional investors and as the international regulatory landscape grows in complexity.
We must be a centre of excellence to which families will come for generations, based on trusted, well nurtured relationships and a long-term, multi-generational approach. That means climbing the value chain and evolving from provider to partner. The future of our business is to ensure that we are the first call our clients make, because we know their structure and their parameters and can guide them through the complexity of their own wealth.