Yacine Diallo (Charles Russell Speechlys): Family Capital – Trends and anticipated evolutions
Charles Russell Speechlys Partner Yacine Diallo says the interest for family offices is booming as an answer to the tremendous challenges wealthy families are facing to protect and preserve their assets in an ever more globalised and regulated world.
What trends are emerging in the family office sector?
Let me start by the unprecedented experience we are ready to live. During the next 20 years, we will see across the globe a massive transition of wealth between generations. As an illustration, over the next decades, we are expecting that over USD 15 trillion worth of assets should pass to the next generation. If we look back, the transfer of wealth has never been an easy process. In a complex, globalised and interconnected world, this task will generate extraordinary complexities. This should result in a reshape of part of the family offices’ industry. We are already seeing the creation of new structures, adopting innovative strategies and wanting to have new forms of economic and social impacts. On another note, in the course of the last decades we have noted in all regions of the world an increase of regulations affecting the financial industry. When it comes to tax, the OECD has realized an impressive work and lobbying towards anti-tax avoidance rules. Europe Union has implemented Directives such as the Anti-Tax Avoidance Directive and DAC6. These new rules affect wealthy and international families on the cross border management of their assets. Family offices should typically enable them to access to the resources and infrastructure allowing them to cope with this new and complex compliance requirements.
“ Family investment is the backbone of our economies. It is important for the EU and especially for Luxembourg to continue to be places where families can smoothly organise their estate and take part to the construction of our common future through the investment and the innovation”
How the legal industry is typically assisting family offices?
The flourishing of family offices mainly results from the duo multi-jurisdictional assets location and increasing complexity of regulations. In this context, we have seen an increasing need for assistance of families on the structuring and management of their professional assets. Cross border matters are creating a need for assistance of legal practioners able to provide a consolidated assistance addressing all the relevant aspects.
It is a fact that since decades family offices have been very active on the real estate sector. This class of assets is still highly prized by family offices. That being said, the younger generation tends do be more dynamic on their investment strategies and increasingly active in the private equity and venture capital sectors. We are seeing family offices increasingly co-investing with PE and VC investment houses, sometimes on major transactions. In this respect, an alignment of structures, instruments, methodology and sometimes philosophy between financial institutions active in the alternative investment sphere and family offices is noticed.
What challenges and opportunities do you identify for family offices over the next five years?
For the next five years, challenges for family offices will probably constitute their main opportunities. Families will need to be more sophisticated in their internal organisations in order to permit additional transparency and to comply with reporting obligations. These challenges should allow them scaling staff resources.
On the same time, the transition of wealth to the next generation will generate major challenges including family/corporate governance issues to be carefully managed. In parallel, families seem increasingly keen to have an impact on their communities. The philanthropy is gradually being replaced by the impact investing model. This trend implies a strict and rigorous valuation and monitoring of the social impact as well as the ambition to apply the best standards to ensure a sustainable economic model. Last but not least, the end of the current Brexit process will generate a significant level of uncertainty having in mind the importance of the UK in this industry. That being said, this will also generate opportunities.