Family offices — the wealth management of the super-rich
The super-rich don't put their money in the bank. What exactly the richest of the rich do with their wealth is, of course, a family secret. But one thing is clear: If you are rich, you want to stay rich. The super-rich therefore commission so-called family offices to manage their wealth. We'll tell you what's behind the term and why real estate plays a central role in this topic.
What is a family office anyway?
Family offices refer to companies that specialize in managing large private assets. Family offices are not just simple asset managers, but often also offer their wealthy clients additional services such as secretarial, bookkeeping or controlling. With their professional networks and first-class financial expertise, the family offices are able to guarantee comprehensive and high-quality asset management. In addition, they can operate independently and neutrally. Wealthy entrepreneurial families have always relied on the discreet asset management of family offices. The customers of such offices are usually not only rich, but rather super-rich. Managing “a few million euros” is not worth the effort for many family offices. As a rule, family offices manage assets that are above the five million euro mark.
What strategy do family offices pursue?
Once you're rich, you want to stay rich. To ensure that super-rich entrepreneurial families are as rich as possible in the coming generations, they commission family offices to manage their assets securely and over the long term. Instead of investing large family assets in enormously risky and speculative hedge funds in order to generate the highest possible returns, the family assets should be invested securely in low-risk investments with long terms. Although high returns are of course not undesirable, they are not the stated aim of the investment. Security comes first when it comes to managing family wealth. In this context, security also means that family offices often invest in industries in which the entrepreneurial family is successful. This creates helpful synergy effects for the investment; after all, the expertise of family members can be used again here.
Why family offices are increasingly focusing on real estate
With knowledge of this safety-based investment strategy in mind, it is now also clear why family offices rely on real estate so often. A study carried out by the “Famos Immobilien” family office spoke a clear language in this regard: Family offices manage assets of around one billion euros on average. A third of this is usually invested in real estate. Overall, they therefore represent the most important factor in the portfolio. Residential properties in particular meet the needs of managers for a secure yet satisfactory return. Real estate investments are particularly interesting for family offices from the point of view of generating regular cash flows.
Residential properties are preferred
It is also worth taking a closer look at the study. A closer look, for example, provides information about which real estate investments are interesting for family offices. The offices of the super-rich mostly rely on residential real estate. Where other investors usually have to take out additional external loans in order to invest in real estate, capital-strong asset managers usually opt for self-financing, as mentioned above. This makes them independent of banks and generates ongoing income at the same time.
Germany's A-locations particularly popular
High-quality and new properties are particularly interesting for family offices. Residential buildings ready to move into are secure investments. Where no family wealth has to be spent on renovating dilapidated old buildings, income can be generated immediately. The location also plays a decisive role. Germany's A-locations, i.e. major cities such as Munich and Hamburg with steady population growth, immediately collect plus points from family offices. B-locations with high risk are less frequently in demand: According to the Famos study, only 28% of family offices rate these properties as a good alternative. With their security-based strategy, asset managers of the super-rich play a role that should not be underestimated, especially in financial crises. Family offices are therefore likely to continue to successfully participate in the real estate market and other investment options in the future.
