Family Offices Venture Deep Into Risky Investments

The family office, which handles the investments of the ultra-rich, has become one of the fastest generators of wealth from the U.S. to Hong Kong and Singapore.

As these offices have become bigger and more sophisticated, their reach has extended to corners of the world economy that were previously no-go areas because they lacked the financial firepower and expertise.

An institution that dates back more than 150 years—when U.S. financier John Pierpont Morgan first coined the term—it has become a cornerstone of the financial system, David Oakley reported for the Financial Times.

The sector has expanded from a small number of groups in the 1980s to about 15,000 offices worldwide with an estimated $5.9 trillion in assets, according to a report in January by U.S. media group Forbes, citing the Economist Intelligence Unit (EIU) and DBS Private Bank.

Some wealth managers expect the number of offices to grow further, enriching both the ultra-rich individuals they serve and the global economy.

“We are extremely bullish on the family office,” says Hannes Hofmann, head of the family office group at Citi Private Bank.

“Wealth of the (ultra-rich) sector is being generated at a very fast rate and that is a good thing for the world economy and the financial system,” he added.

As these offices have become bigger and more sophisticated, their reach has extended to corners of the world economy that were previously no-go areas because they lacked the financial firepower and expertise.

Now, they offer services to small and medium-sized companies in markets in Latin America, such as Mexico, and Chile, and Asia, where high interest rates and undeveloped financial sectors make it hard to raise capital from local banks.