The private bankers managing the finances of the world’s ultra-wealthy expect the next generation will prioritize socially responsible investing -- even if it comes at the expense of returns.
About three out of four family offices predict its future leaders will be more focused on environmental, social and corporate governance criteria, and 86% say the next generation will more likely invest in decentralized finance and cryptocurrencies, according to a first-of-its-kind survey by BNY Mellon Wealth Management’s global family office group, in partnership with the Harris Poll.
Succession planning has been a topic of debate for years in the world of family offices, which collectively manage trillions of dollars and have become a growing force in financial markets. A UBS Group AG survey in 2020 found that a majority of incoming heirs of dynasties prefer to keep investments just as they are -- a rebuke to the idea that wealthy millennials are more green and altruistic than their parents.
Still, the BNY Mellon report, conducted online between Oct. 14 and Nov. 8 with 200 decision-makers in family offices managing at least $150 million, offers a snapshot of their thinking at a time when stocks, Bitcoin and other assets were approaching all-time highs while countries were still contending with the Covid-19 pandemic. It raises the prospect that there might yet be a generational shift in how the wealth of the ultra-rich is managed.
“Whatever the next generation decides to get involved in, they want to leave their mark on the world in a positive way regardless of return,” Vincent Hayes, head of the global family office at BNY Mellon Wealth Management, said in an interview. “This is something that has been a sticking point between families.”
Family offices are typically discreet firms that manage their fortunes, tax affairs and even lifestyles of the wealthy. The largest oversee billions of dollars for multi-generational dynasties.
Among the reasons there are questions about the generational change in investing philosophy is that family offices often facilitate charitable giving as well. In the BNY Mellon survey, almost three-quarters of respondents said they were involved in philanthropy. Climate change, economic inequality and social justice were the three leading causes globally.
Seamless leadership transfers within family offices are a key step in safeguarding their assets. It’s finding a leader that’s the tough part: 60% of those surveyed said it’s been a challenge to recruit well-qualified executives, with 70% saying they’d pay an above-market rate to get the right hire.
Meanwhile, three out of four family offices are either investing in or exploring their options around digital currencies, according to the report, in which half of those surveyed were from the U.S., with the rest from a mix of other countries. Of the 20% that are already trading crypto, a majority plan to increase their holdings.
With the younger generation widely seen as more interested in crypto investments, family offices will need to identify and hire talent to manage the transition effectively, said Rajesh Nakadi, head of investments in BNY Mellon Wealth Management’s global family office.