HNW families rethinking diversification strategies amid global uncertainty

High net worth (HNW) families and family offices are rethinking their diversification strategies amid rising geopolitical and economic uncertainty, according to TMF Group.

The private wealth and family office service provider found that HNW families and family offices were considering a wide range of factors when choosing where to manage their wealth.

Its Building a future-ready family wealth strategy white paper noted that family offices no longer viewed geographical diversification as a one-off response to uncertainty, but as an ongoing and long-term risk mitigation strategy.

Nearly a third (31 per cent) cited being close to the markets they are invested in as their main reason for selecting a jurisdiction, followed by political stability (23 per cent) and economic stability (23 per cent).

Most family offices were found to be taking a more strategic approach, rather than moving away from established bases, by expanding into additional jurisdictions as their operations and portfolios grow.

“Families are increasingly making strategic moves to diversify across geographies, protecting themselves against local volatility and accessing new opportunities,” commented TMF Group global head of private wealth and family offices, Tim Houghton.

“But this creates a new challenge: diversification can reduce concentration risk, but it also means families must manage increasingly complex regulatory, reporting and governance requirements across borders.”

The white paper also highlighted that family offices were moving away from asking whether they should use AI to considering how to use it while maintaining privacy, security, and decision-making standards.

AI was being considered for investment research, due diligence, and operational workflows, although adoption was not uniform across generations.

Generational differences were reshaping family office decision making, according to TMF Group, with professionalisation driving offices to explore models such as multifamily arrangements and virtual family offices, or outsource some functions.

ESG considerations were expected to remain key over the long term, as younger family members take on a greater role in decision making.

In the UK and Channel Islands, family offices were having to adapt to evolving regulatory and operational demands, putting a greater focus on governance, digitalisation and flexible wealth structures.

The white paper pointed to policy changes in the UK, such as to business property relief, inheritance tax, and the abolition of the non-dom regime, as drivers for families to reassess how they structure tax affairs and plan succession.

Meanwhile, the Channel Islands were found to also be adapting their frameworks to meet changing family office needs, including updated company and trust laws, and the introduction of the Family Private Investment Fund in Guernsey.

“The Channel Islands continue to evolve in line with global best practice, while preserving the flexibility and discretion that international families require,” said TMF Group director of trust and corporate services, Helen Bougourd.

“The introduction of the Family Private Investment Fund, with its much lighter regulatory burden, clearly demonstrates the commitment to reducing regulatory barriers and enabling innovation.”

Houghton added: “Families want to be able to access different markets, investment opportunities and wealth centres without becoming overexposed to any one jurisdiction.”

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