There remains great potential in the UHNW wealth segment, but family offices need the technology tools and understanding to make the most of it, argues the author of this article.

This news service has looked at the technology demands confronting single- and multi-family offices. It is clear that this is a major focus for the FO industry, with difficult areas to tackle such as cybersecurity, managing complex private market investments, and how to allow family members to communicate well. (See an example of some of the issues here.)

In this article, Nicole Eberhardt (pictured), chief strategy officer at Ledgex, goes into some of the technology choices and considerations that family offices face. The editors of this news service are pleased to share these views. Please jump into the conversation! The usual editorial disclaimers apply. Email tom.burroughes@wealthbriefing.com

Family offices are at a crossroads. 

The number of ultra-high net worth individuals who rely on them for alternative investing has continually climbed in recent years and, if anything, it’s now accelerating. The 2020 Capgemini World Wealth Report noted that the body of UHNW individuals had swollen to 19.6 million. Just two years later, its 2022 edition reported even more impressive numbers. In North America alone, which already boasted the most UHNW individuals, the population had increased 13.2 per cent and their individual wealth by 13.8 per cent.

Make no mistake, the promise of this market is very good news, but only if a family office is supported by purpose-built technology that enables them to take on greater portfolio volume. If not, their lack of capabilities will limit success, particularly due to a lack of timely reporting and inability to turn valuable information around quickly. Processing data takes time, and with staff at family offices typically spread too thinly to begin with, firms could put themselves in a hole from which they can’t climb out. 

That said, these next few years will determine whether a family office has a bright future or whether they’re unable to service family needs properly, putting wealth preservation and growth in jeopardy. 

It’s all in the timing
Family offices are hesitant to take on amalgamated portfolios. That’s because they can’t manage data across views and lack confidence in the quality of their investment streams. It’s also a struggle to understand the timing and reliability of reporting – and that’s a problem that’ll become more complex with added portfolio volume.

For instance, an alternative investment such as property is valued using model estimates. Unfortunately, data is available only weekly under the best circumstances and deemed indicative, which is a more pleasant way of saying a “rough guess.” There might be more precise estimates for hedge funds and private equity, but those follow the end of a month or quarter and, all the while, revisions continue to roll in and muddy the waters.

That’s the reason why many family offices use multiple, separate accounting systems, including at least one for interim reporting and another for official accounting books of records. The problem is, different systems use different formats, and that means additional processing time and a drain on staff. And this is occurring as family offices attempt to leverage reported data to make more reliable, timely decisions.