A year into her job as BlackRock’s Head of UK Family Offices, Endowments & Foundations, Victoria Matthews reflects on the changing priorities of family offices – and how BlackRock is supporting them with investment expertise, technology and solutions.
Author: Victoria Matthews, Head of UK Family Offices, Endowments & Foundations
Q. Today’s rapidly changing macroeconomic conditions are creating considerable uncertainty. What impact are you seeing in family offices (FO)?
Family offices are a unique client segment because they have long duration capital but can be incredibly opportunistic and nimble. What we have seen this year is almost all of our family office clients reviewing both their strategic asset allocation and their approach to tactical investing. Every investment now competes against cash so our clients are reviewing what they own and placing a higher priority on liquidity in this market environment.
Family offices do continue to show a strong preference for private markets, with most looking to maintain or increase their allocations (Source: BlackRock, 31 January 2023). However, we have seen clients shifting the mix of assets within their alternatives allocation, with less focus on resource-intensive direct private equity investments and more focus on private credit, private equity secondary investments and infrastructure.
Finally, in our opinion many family offices have recognised that they are under-resourced in key areas, especially technology, deal sourcing and risk management. As such, we have seen more family office clients looking to us for support in these areas to help them achieve their strategic investment goals.
Q. The investment landscape has shifted remarkably over the last two years and volatility is rampant. Where do you see the opportunities and challenges?
I believe mega themes are a key opportunity, they are redefining business models and driving value creation over the long term. For example, technological innovation and geopolitical fragmentation. As such, there are some really interesting opportunities in commodities and in healthcare.
More specifically, in public markets, unconstrained strategies in both equities and fixed income are resonating most with our clients. These strategies are not tethered to specific benchmark, geography, sector or maturity limits and therefore leverage a broader toolkit to respond to the rapidly shifting market conditions.
In private markets, infrastructure has been the standout asset class of interest this year and I expect this to continue. As well as the obvious portfolio benefits such as inflation protection and diversification, infrastructure plays a critical role in both the transition to a lower carbon economy and a more technology-driven world.
RISK: Diversification and asset allocation may not fully protect you from market risk.
I would also highlight cash! Family offices have always held cash for opportunistic investments and to manage their capital call requirements in illiquid markets. The difference now is the number of conversations we are having on the cash component - cash is an asset class again in its own right!
We believe the biggest challenges our family office clients are facing is managing liquidity in the face of a slower exit environment in their private equity books and attracting and retaining talent to give them the best access to deals and opportunities.
Q.The transition to lower carbon economies is under way and being driven by an interplay of policy, technology and consumer and investor preferences. Within the family office space, where are we in the transition process? And what are you hearing from clients?
We recently hosted our Family Office conference in Paris which included a session on the energy transition, led by Meghan Sharp who leads our Decarbonization Partners business. It was an extremely well attended session.
Government support for the energy transition has the potential to be a gamechanger, namely the Inflation Reduction Act in the US. Each family office is at a different point in the transition journey and we see a broad spectrum of preferences. We have clients who want exposure via thematic funds in public equities, clients who are purely focused on direct private market allocations in climate transition technologies, and clients who want impact funds to achieve sustainable outcomes in addition to financial return. As a fiduciary, it is our job to understand each of our client’s investment goals and preferences and provide them with choice in investment products, portfolio construction, analytics and stewardship to help them meet these goals.
One specific area that has garnered increased attention from our clients this year is critical minerals. Copper, lithium, nickel, cobalt and other rare earth elements are essential components in many of the rapidly growing clean energy technologies such as solar panels, wind turbines, hydrogen and carbon storage and electric batteries. We believe that the future of energy is metals and materials intensive and there are some fantastic opportunities in both public and private markets to capture this long term trend.
Q. Every family office will have different objectives, different challenges. How does BlackRock help meet the needs of each one?
Each family office is different, but there are commonalities in their investment approach and the challenges they face. We recognise the nuances of managing family wealth and the challenges of balancing current needs with future ones. As family offices increase in size and complexity, they are looking for institutional solutions and that is where we can help. We have a dedicated global family office team who can navigate and harness the resources of our firm on their behalf, acting as an extension of their investment team to provide investment solutions, investment expertise and insight as well as access to our proprietary technology, Aladdin, to assist with risk management.
RISK: While proprietary technology platforms may help manage risk, risk cannot be eliminated.
As I said before, family offices are a unique client base. We produce curated content and organise events specific to this client segment, such as our annual Family Office survey which provides significant granularity on the investment priorities and challenges of the global family office base; topic-specific roundtables and webinars; and our flagship Family Office conference which provides a forum for our clients to connect with our investment specialists and their peers to share knowledge and best practice.
What makes BlackRock stand out is the power of our connections – connections to investment expertise across every asset class and connections to family offices across the world.
Q. How is BlackRock working with family offices when looking at the next generation of the family?
We don’t have a one-size-fits-all approach. Some of the next generation want to have a very hands-off approach with the family wealth, and so prefer to outsource to external partners who can help them with specific parts of the portfolio, or the portfolio in totality. There are some next generation family members who want to be very involved in the decision making and have their own investment preferences and/or risk tolerances, so we create dynamic partnerships where there is significant knowledge sharing in the areas of their interest. This runs the gamut from space travel, to music royalties, to disruptive healthcare technologies and artificial intelligence. Broadly, I would say the next generation is very data focused and have a preference for investments in innovative or niche sectors which have the potential for positive societal impact. They like meeting peers at other family offices and endowments, and we can help facilitate those connections. Whatever their approach, we can help support and empower them as they take over the reins in managing the family wealth.
Q. You’ve been at BlackRock just over a year now. What has been your single most valuable takeaway from the past 12 months – and what excites you most about the next year?
I have worked in financial markets for 20 years and I feel like I have learnt more in the past 12 months than at any point in my career. The breadth of solutions and depth of research that we have at BlackRock is unmatched and I have been staggered by the amount of innovation happening within the firm.
We are in a new market regime and there are so many opportunities. Our clients are open to ideas and looking for support. It’s a really exciting time to be working at a firm which is so innovative and constantly striving to stay ahead of client needs.
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