Citi sees more Family Offices headquartering in the Middle East with significant opportunity for wealth transition to the next generation

Amid market volatility in 2023, family offices are shifting their focus toward wealth management and investment management and remain optimistic as they expect portfolio gains in the coming year

Citi Private Bank’s Global Family Office Group today released the results of its 2023 Family Office Survey, offering a rare glimpse into the thinking and actions of some of the world’s most sophisticated investors, its family office clients. In a year of market volatility and ongoing geopolitical challenges, the report outlines key challenges and areas of opportunities in the year ahead.

In the Middle east Citi sees more Family Offices headquartering in the region with significant opportunity for wealth transition to the next generation

“We are seeing more and more businesses and families beginning to headquarter themselves in the Middle East.  The region is becoming an increasingly important location for Citi to better engage with clients and to create wealth in the region,” says Selim Elgen, MEA Head of Citi Private Bank. ‘’We are also seeing that our clients in the region are at various stages of the wealth transition to the next generation and we have a very focused strategy on dealing with this entire opportunity.’’

The survey, which is distributed each year to all of Citi’s family office clients globally, has seen a sharp rise in the number of respondents this year, with participation more than doubling from the previous year, indicating the desire amongst family offices to compare best practices and understand the positioning of peers on a confidential basis.

Several of the key themes to emerge from this year’s survey include:

  • In a broad portfolio reassessment, family offices have raised allocations to fixed income and private equity, making bigger asset allocation changes more than in recent years.
  • Continued focus on direct investments, with two thirds of family offices looking for value opportunities, whilst 38% have paused new direct investments due to economic uncertainty
  • Rising portfolio values in the first half of 2023 have positively surprised to the upside; looking forward there is widespread optimism for investment returns in the year ahead
  • More family offices are focusing on wealth and investment management due to the uncertain macro environment, with less time spent on family unity and continuity compared to previous years. But family offices are aware that they need to assist the integration of the next generation into managing family wealth
  • A generational philanthropic transition is coming and family offices are working hard to reflect the giving philosophy and priorities of the rising generation
  • There is a large yet narrowing gap between intention and action on sustainable investments

“We are excited to share this year’s survey findings, which reflect the needs and actions of some of the most diverse and sophisticated family offices around the world,” says Hannes Hofmann, Global Head of the Global Family Office Group at Citi Private Bank. “With 268 respondents, we believe this is the most comprehensive survey of its kind, offering unique insights into the global challenges and opportunities family offices face today. With two thirds of respondents from outside the US, we have the opportunity to compare findings between Asia, Europe, Latin and North America, as well as between family offices that serve first and second generation families, versus third, fourth and later generation. We look forward to working closely with our family office clients, to enable them to access all areas of Citi across wealth management, investment banking, commercial banking and custody and security services.”

The top concerns for family offices include inflation, interest rate increases, as well as geopolitical uncertainty amidst heightened US/China tensions. Amid rising asset prices in the first half of 2023, two thirds of respondents saw mark-to-market portfolio increases and nearly every respondent expects positive portfolio returns over the next 12 months. In an environment of rising financial markets, recession fears and multi-year high bond yields in 2023, many family offices reassessed their asset allocation more in recent years. Over half (51%) reported increasing fixed income allocations, 38% upped private equity allocations, while 38% cut public equity allocations.

The 2023 Global Family Office Survey Insights report also found that direct investing remains a strong focus for family offices, but while 66% of family offices surveyed said they were seeking opportunistic deals based on attractive valuations, 38% paused new direct investments due to economic uncertainty. Technology was the most popular sector for direct investment in every region apart from Latin America, where there was a preference for real estate (57% vs 43%). Another disparity was in attitudes toward healthcare, where 58% of family offices in Europe, the Middle East and Africa and 56% of family offices in Asia Pacific named the sector among their top three, compared to 26% in North America.

Furthermore, 74% of family offices report their primary focus has shifted toward wealth management and investment management (55%). This is well ahead of fostering family unity and continuity (21%), but this trend is less pronounced for third generation families, who recognize the need to manage critical issues alongside short-term imperatives. At the same time, the families themselves are focused on preparing for the future by preserving asset values (68%) and preparing the next generation as responsible wealth owners (60%). This is an opportunity for family offices to continue

The survey results also showed while family offices’ philanthropic focus has yet to adapt to reflect the priorities of the rising generation, families are increasingly aware that a generational philanthropic transition is coming. They are seeking support to engage the next generation with 38% of respondents planning philanthropic leadership succession and 34% planning to integrate philanthropy as part of their broader wealth planning strategy.

This year’s survey was initiated during Citi Private Bank’s eighth annual Family Office Leadership Program held in June 2023. The survey was subsequently released to Citi Private Bank’s global family office clients for input. The survey included over 40 questions aimed at gauging investment sentiment and portfolio actions of clients in the wake of ongoing geopolitical tensions, macroeconomic headwinds and market volatility in early 2023. It drew responses from 268 participants who were included in this report.

Citi Private Bank’s Global Family Office Group serves single family offices, private investment companies and private holding companies, including family-owned enterprises and foundations, around the world. We offer clients comprehensive private banking and family office advisory services, institutional access to global opportunities and connections to a community of like-minded peers.