Family Offices Still Pressured To Deploy Cash

Tom Burroughes

1 March 2023

Family offices that have been set up by a younger generation of enthusiastic business creators have been sitting on cash and weighing when to deploy it – a decision that may be less urgent now that central banks have raised interest rates. Even so, with rates still below inflation rates, the pressure hasn’t gone away to put cash to work.

“We are seeing a number of entrepreneurial people who have made money quite quickly… it is first-gen wealth and relatively young. They have had a lot of events to handle over the past few years and they’re sitting on cash,” Amy Collins, who leads the Jersey Family Office at , said. The firm is a global provider of services to financial institutions, asset managers, corporates, and high net worth individuals. It works with more than 60 family offices around the world.

Rising interest rates help to ease the urgency of finding alternatives to cash, but people can sometimes think that there is a binary choice between holding cash or going for a risky asset.

“We tend to find they sometimes miss out that middle-risk asset,” she said.

Collins told this news service that many of its clients over the past 18 months have had large parts of their investment portfolios in cash as they have sought to protect their assets from volatile markets.

The conversation also reflects how non-public markets have been overshadowed to some extent by the rise of private markets, in part because of their illiquidity premium – an attractive quality at a time of thin yields in recent years.

The younger cohort of ultra-high net worth individuals, via their family offices, like areas such as private equity, and the structures around them, because it is an industry they already know well. Club deals – in which family offices group together on similar deals – is a trend that Collins highlights. “They’re similar people and they trust each other.”

Given the need to work out the most suitable structures in which to hold alternative investments such as private equity, it encourages people to look for neutral jurisdictions – such as Jersey and Guernsey – she said. An advisory arm might sit in one country, such as the UK, but the asset-holding part will be in an IFC such as Jersey, she said. These places have experience in dealing with administration, reporting, auditing and tax.

In other trends, Collins said she’s noticed a shift from traditional trusts where the assets could be quite small to a more concentrated cluster of structures where they were larger, and serving more high-value clients.