How Gen X, millennials are innovating family offices

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The “Great Wealth Transfer” is in full swing, as over $100 trillion is expected to be transferred from older generations to their heirs through 2048, according to Cerulli Associates.

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As the wealth baton is passed on to younger generations, the heirs of wealthy families are taking a more active role in the impact they seek to make in the world, using the traditionally monolithic family office for more innovative, value-based investments.

The Great Wealth Transfer is in full swing, as over $100 trillion is expected to be transferred from older generations to their heirs through 2048 in the United States, according to a Dec. report by the research and consulting firm Cerulli Associates.

“There is a large intergenerational wealth transfer, but the preferences of baby boomers are markedly different from the preferences of … millennials,” Nirbhay Handa, CEO of global migration platform Multipolitan, told CNBC Make It.

“Now you have this younger generation that really believes that profit and progress should go hand in hand,” Handa said.

A sea change

Millennials (ages 27 to 42) and Generation X (ages 43 to 58) stand to be the biggest beneficiaries of the wealth transfer and are expected to inherit about $85 trillion between 2024 and 2048, according to the report.

Generation Z and younger generations (ages 27 and younger) are expected to inherit over $15 trillion.

In particular, the majority of the wealth transfer will come from high net worth (HNW) and ultra high net worth (UNHW) families, which together make up about 2% of all households, according to the report. These families are expected to contribute over 50% of remittances, or about $62 trillion.

Compared to the baby boomers and older generations, “(younger generations) are less motivated by money, if I generalize, and much more (motivated by) contributing to society,” said Martin Roll, an INSEAD Distinguished Fellow and family business and family office expert for McKinsey and Company. “They look out the front window (and ask), ‘What’s ahead? What are the big questions of our time?'”

Gen X and millennials are concerned with societal impact — topics like climate change, diversity, health and wellness and safeguarding against geopolitical conflict are top of mind, Handa said.

“I think sustainability and the whole ESG narrative is extremely robust (among younger generations),” the Multipolitan CEO added. “So they may not be interested in investing in fossil fuels or oil and gas, but they are very interested in investing in a company like Oatly … or Beyond Meat,” Handa said.

Family offices have become centers of innovation.

Nirbhay Handa

CEO, Multipolitan

This shift in younger generations’ investment attitudes came out of necessity, Handa said.

“People see wars, (they) see the impact of climate change… there is a shortage of drinking water in many parts of the world,” he explained. “As a result, this generation has become more determined to focus on things that align with their personal values.”

“The challenges are real … yes, we talked about the climate in the 60s and 70s, you find them in the American papers back then, but it was just a little more abstract. Now it’s real. Storms come, floods happen, are hurricanes more frequent… that’s proof (and) they’re seeing it,” Roll said.

‘Innovation centers’

Another major shift can be seen in how some family offices are run.

“The whole idea of ​​family offices is less rigid than it used to be… Family Offices have become centers of innovation,” Handa said. Having grown up in the digital age, the younger generations of wealthy families are investing more in technology and startups.

They are looking to discover and invest in technologies that can be a “lever for impact,” Roll said. “For example, investing in climate technology, edtech, food processing, water treatment, natural resources, renewable energy.”

In addition, younger generations are more active in how they invest through their family offices.

“Thirty years ago, family offices were primarily the equity holdings of the business that the family owns through the family office and would be tied up in real estate, some broader public equities and (overall it would be a) passive portfolio.” Roll said.

Today, however, family offices are increasingly making direct investments in private companies, which is not traditional, Roll added.

“The parents used to be what I call monolithic — they ran one business, but the younger people coming in might not be interested in chemicals, which is the main business, so they’re starting to diversify (through) the family office,” Roll said.

Why is the large transfer of wealth happening now?

While it is true that wealth has always changed hands, the significance of our generation’s great wealth transfer can be explained by looking back at the third wave of the Industrial Revolution.

“It was really the industrialization of the Western world in particular that happened in the ’50s and ’60s, ultimately with the rise of America after World War II and Europe — that a lot of wealth was created,” Roll said.

Out of this postwar “boom” there were about 40 years of “outstanding economic activity,” which led to the creation of new industries, large corporations, and ultimately the rise of the middle class in the United States and Europe, Roll said.

“That’s why jobs were created … Everybody got a car, people got a house … so you got a lot of big shifts that enabled that kind of wealth creation,” Roll told CNBC Make It.

It was this senior generation that really built “the world and the wealth after World War II,” and “that wealth, including business deposits, is now being passed on to Gen X, but of course to younger people as well,” Rulle said.

To build a bridge between the old and the new

All in all, when trillions of dollars change hands, what does it mean for the world?

“This massive shift in money means that the way things were done in the past is not necessarily how things will be done in the future,” Handa said.

“This era is about vitality and vitality and engagement. It’s about democratization, it’s about aspiration, it’s about accessibility,” Handa said. “Investment preferences are changing and legacy institutions must adapt to the new world.”

Ultimately, as the younger generations inherit the wealth, Roll said, “I think you’re going to see the money (do) good work. It’s going to be reinvested in the economy … in technology, and I believe in some of the big challenges of our time: climate, gender issues, minorities, villages, poor people and basic (education).”

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