Family offices could overtake hedge funds, worth $5.4 trillion by 2030

A version of this article first appeared on CNBC's Inside Wealth with Robert Frank, a weekly guide for high-net-worth investors and consumers. Register to receive future issues directly to your inbox.

Family offices are expected to add more than $2 trillion in assets by 2030, as an increase in wealth concentration and a revolution in wealth management drive rapid growth in new family offices.

The number of single-family offices — the in-house investment and service firms of families typically worth $100 million or more — is expected to rise from 8,000 to 10,720 by 2030, according to a report by Deloitte Private. Their assets are expected to grow even faster, topping $5.4 trillion in 2030, up from $3.1 trillion today and more than doubling since 2019.

In total, the wealth of families with family offices is expected to exceed $9.5 trillion by 2030, according to the report, more than doubling in that decade.

“Growth has been explosive,” said Rebecca Gooch, global head of research at Deloitte Private. “There has actually been an acceleration in family office growth over the past decade.”

The rise of family offices is transforming the wealth management industry and creating a powerful new force in the financial landscape. Expected to hold more assets than hedge funds in the coming years, they have become the new stars of fundraising, with venture capital firms, private equity firms and private companies vying for a slice of their growing wealth.

The growth is being driven by two broader economic forces. Increasingly, wealth is growing fastest at the top of the pyramid, as technology and globalization create winner-take-all markets and outsized rewards for tech entrepreneurs. The number of Americans worth $30 million or more grew 7.5% in 2023, to 90,700, while their fortunes rose to $7.4 trillion, according to CapGemini.

According to Henley & Partners and New World Wealth, the population of centimillionaires (those with $100 million or more) has more than doubled in the past 20 years to more than 28,000 people. According to Forbes, there are now about 2,700 billionaires in the world, more than 2.5 times the number in 2010.

At the same time, the ultra-rich are changing the way they manage their investments and financial lives. Rather than handing over their fortunes to a single private bank or wealth management firm, today's mega-rich are choosing to create single-family offices to better represent their interests and long-term goals. Family offices are seen as offering more privacy, more personalization, and more tailored programs for the next generation of the family.

“They want a team that is dedicated to them 24 hours a day,” Gooch said. “Not just when it comes to investments, but in every area of ​​their life.”

In the aftermath of the financial crisis, wealthy families also want advisors who represent the family's best interests, rather than private bank or wealth management advisors driven by the need to sell products.

“There are some organizations that don't have products to offer, but a lot of them do,” said Eric Johnson, private wealth leader and family office tax leader at Deloitte. “And lo and behold, if you reach out to them, what you're going to have to buy is pretty much what they're selling, which may not be in the best interest of the family.”

According to Deloitte, more than two-thirds of family offices have been created since 2000. The majority (41%) were founded by the original creators of wealth, while 30% serve the second generation (heirs) and 19% the third generation.

North America is leading the family office revolution. Family office wealth in North America is expected to grow by 258% between 2019 and 2030, compared to 208% in the Asia-Pacific region. North America’s 3,180 single-family offices are expected to increase to 4,190 by 2030, representing approximately 40% of the global total. There are approximately 2,290 family offices in Asia-Pacific today, and this is expected to increase to 3,200 by 2030.

The total wealth of families with family offices in North America has more than doubled since 2019, to $2.4 trillion. It is expected to reach $4 trillion by 2030, according to Deloitte.

That $5 trillion pool of global capital has sparked a frenzy on Wall Street to help family offices manage their money. From Goldman Sachs and Morgan Stanley to UBS, JP Morgan Private Bank, Citi Private Bank and a myriad of trust companies and multifamily offices, traditional wealth management firms are snapping up family office specialists and creating new teams to better focus on growth.

Accounting firms, tax attorneys, consulting firms and technology companies are also waking up to the power of family offices, which can now more easily outsource parts of their business to keep costs down.

“There's a whole new group of companies that are benefiting from this ecosystem,” Gooch said.

As they expand in both size and number, family offices are also becoming institutionalized. Instead of two- or three-person offices focused on basic portfolios and organizing family travel, today’s family offices are more like boutique investment firms. The average family office has a staff of 15 people managing $2 billion, according to Deloitte.

Family offices are also changing the way they invest. Instead of traditional 60-40 stock and bond portfolios, family offices are moving their money into alternative assets, including private equity, venture capital, real estate and private credit.

According to JP Morgan Private Bank’s Global Family Office Report, family offices now hold 46% of their total portfolio in alternative investments. The largest share is in private equity, at 19%. In addition to investing in private equity funds, more and more family offices are conducting direct transactions, where they invest directly in a private company.

A BNY Wealth survey found that 62% of family offices made at least six direct investments last year, and 71% plan to make the same number of direct transactions this year.

Private equity giants like Blackstone, KKR and Carlyle are beefing up their private wealth management teams to better target family offices. Private equity dealmakers are also discovering family offices, which can buy equity stakes or entire companies. Because family offices have long time horizons and prefer to invest over decades or even generations, they are seen as “more patient capital” compared to private equity or venture capital firms.

“Family offices can be very solid and strong partners to invest with,” Gooch said. “I think a lot of private companies are very grateful for their patient, long-term capital and dedication to this space.”

To support their growing assets and responsibilities, family offices are on a hiring spree. According to Deloitte, 40% of family offices plan to hire more staff this year. More than a third (36%) say they plan to increase the amount of services they provide to the family or increase the number of family members they serve. More than a third (34%) are also increasing their reliance on outsourcing, Deloitte notes.

Deloitte said the biggest trend for family offices in the coming years will be the continued drive towards “institutionalisation”, with more professional management, governance and technology. More than a quarter of family offices now have multiple “branch offices” to serve different parts of the family, often in other countries.

And with the massive wealth transfer expected to shift trillions of dollars to spouses and the next generation, more women and heirs will be taking over family offices in the coming years. The median age of family office directors in the Deloitte survey was 68, and 4 in 10 family offices will go through a succession process in the next decade.

While women account for 10% of wealth holders worth $100 million or more, they control 15% of the world's family offices, the survey found.

“In a similar situation to men, women are more likely to become family office directors,” Gooch said. “Family offices can really focus on key life stages, such as retirement or legacy planning, and making sure the next generation is prepared.”