Family office index to launch next year
A leading organisation monitoring investment activity by sovereign wealth funds (SWFs) has announced it will launch a global index of family offices early next year.
The Sovereign Wealth Fund Institute (SWFI) Family Office Index will initially cover the world’s 100 largest family offices, but will likely expand its coverage in the coming years.
“Audited financials, a publicly accessible website with information, including policies and organisational structure, holdings, and which external fund managers are used — our index will make it easy for the public to [find and] understand this,” said SWFI president and CEO Michael Maduell, adding that the index would launch during the first quarter of next year.
The index will follow a ten-point rating scale, with each family office allocated a point for each of ten areas related to transparency.
TRANSPARENCY FOCUS
Family offices will self-report their data and will not pay to be included in the index, which, like SWFI’s existing sovereign fund index, will be funded partly by subscriptions from professionals in the investment community. Basic descriptive data will be publicly available, while each family office will control who sees their more detailed records.
The ten rating areas include producing independently audited annual reports, publishing the size of ownership stakes (as a proportion of a company’s total size) and their geographic locations, and publishing guidelines in reference to ethical standards, investment policies, and who enforces guidelines.
Lakshmi Narayanan, chairman of SWFI, said the index will provide a means for investors, investment managers, and other investment professionals to verify family offices whom they are considering working or co-investing with.
“This is going to be game-changing: you get free access to the data; if you are looking for validation of family offices, you will be able to get it,” he said.
GROWING WEALTH
Maduell said the demand for such an index was increasing, as the wealth of super rich individuals and their families grew and, with it, their economic influence. The wealth held by UHNWIs in 2022 totaled $10.1 trillion, according to the Knight Frank Wealth Report 2023, published by estate agency Knight Frank.
“These aren’t public institutions, they are a lot more secret, but they often buy up stakes in large companies,” he said. Maduell also pointed to the challenges of distinguishing between family offices and sovereign funds in cases such as those in the Middle East, where ruling dynasties owned sovereign assets.
The new rating scale is based on the transparency measures in the Linaburg-Maduell Transparency Index. That index, developed by SWFI in 2008, rates transparency among government-owned investment vehicles and is now used widely by stakeholders and funds themselves, in their annual reports and statements. It was launched to address concerns of unethical agendas, and calls for these funds to signal more clearly the motivation behind their investment decisions.
“It has become the global standard benchmark for SWFs, and we hope the family office will be the same,” said Narayanan.
Maduell said that the role of the SWF index was important in an era of greater economic protectionism, where sovereign funds are supporting government policies. “There is some state craft here; in reality [an SWF] is linked to a government,” he said.
CHALLENGES AHEAD
The 2023 EY and University of St. Gallen Family Business Index, which surveyed the world’s 500 largest family-owned businesses, estimated that collectively they generate $8.02 trillion in revenue, employing 24.5 million people.
But Maduell explained the choice to focus on the 100 largest family offices by noting the paucity of publicly available information about family offices and frequently complex ownership structures of family companies and conglomerates.
“Building a family office profile is ten times harder than building an SWF profile,” he said.
“In some cases, a family office comprises 40 different holdings or entities, which are separate for liability or tax purposes, each of which, themselves, has separate holdings. Do you count that as a single-family office or many? How about the treasury division in a large family conglomerate, which has an internal requirement to get a yield via private credit funds?”
“You also need to exclude wealth managers, who often identify themselves as family offices as a way to market themselves,” he added.
More details of the index will be announced at SWFI’s forthcoming FORT North America global wealth conference, in Dallas, Texas on October 9 and 10.