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Shaping the family offices of tomorrow

MALIKA SHERMATOVA: "What will a family office of the future be like and how soon we can all get our heads around this technology before we see the benefits?"

Family offices have traditionally been able to maintain their low profile and stick with their discreet approach in pretty much every aspect of their operation. It is, however, interesting to observe how this is being shaken up in one way or another as a result of the changing landscape of today’s fast-paced and trend-driven world.

This, combined with the rise of a new generation of wealthy coming into play, one wonders what the family offices of tomorrow will look like and whether new technologies such as blockchain and emerging asset classes such as cryptocurrencies are already breaking down the old-fashioned ways of operating, investing or even trading.

Despite the hesitant take-up initially, 2017 in particular saw a significant surge of investments into ICOs and cryptocurrencies. Almost every industry, including wealth management, and even the most conservative of family offices in particular seemed to be exploring these emerging asset classes and closely following their performance and developments.

Investment portfolios

While the majority of family offices would only focus on what they understand best and therefore do well, crypto-assets are certainly make up a proportion of investment portfolios for some of these family offices today – there is a good number of family offices not only investing in crypto-assets, but also trading these in the same way as other investments.

According to Miguel Forbes, international investor and co-founder of Forbes.com, cryptocurrencies offer tremendous opportunities for sophisticated and astute investors.

“Family offices, especially the ones with very significant investable assets, tend to diversify, and some of them are incorporating a variety of cryptocurrencies in their portfolios,” he has stated.

Having said that, if the performance of Bitcoin – and other cryptocurrencies for that matter – over the past 12 months is anything to go by, many UHNWs are probably gasping “told you so!”. Nevertheless, according to Gianluca Massini Rosati, CEO and co-founder of financial accounting solution XRIBA, “the government currency of the future is inevitably crypto”.

Real value

He thinks that ten years from now most governments around the world will create or adopt some form of virtual currency. According to him, cryptocurrency is more efficient in comparison to the traditional fiat alternative, as it provides reduced settlement times, increased traceability, and can also be backed by real assets, similar to how it used to be fiat currency in the past granting its actual, real value. Very interesting and very optimistic, but let’s see.

While the attractiveness of an idea of cryptocurrencies as an asset class of the 21st century might be tarnished and is somewhat fading, at least for now, the idea of blockchain technology, or DLT itself, be it from an investment point of view or just its application to family office operational processes certainly remains an interesting area to explore.

Perception of DLT

Now, the general perception of many is that DLT is an integral part of the whole cryptocurrency concept. However, it’s worth noting an interesting statement or an argument in its own right by The Chain Economy Consultancy Ltd that “crypto-assets are one application of DLT, all crypto-assets utilise some form of DLT, but not all application of DLT involves crypto-assets”. There you have it! Short and simple!

The Financial Conduct Authority (FCA) certainly seems to be taking steps in the right direction by commencing a consultation in response to industry requests for clarity and pressure from Cryptoasset Taskforce, which published a report last October highlighting the pros and cons of crypto assets and blockchain, and the UK’s regulatory approach to the matter.

What will a family office of tomorrow be like and how soon we can all get our heads around this “world-transforming” technology and assets before we can draw any real benefits is yet to be determined, but the vast number of conversations and initiatives around these topics is certainly intriguing and somewhat encouraging.

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