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‘The future for family offices in Canada is very bright’

Liquidity brought by expanding private equity is putting family offices at inflection point, says Ed Giacomelli

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Canadian business families and family enterprises are alive and well and proliferating in Canada, with many utilizing family offices to oversee their enterprise.

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While references to family offices are more common today, that wasn’t so a decade ago. In contrast, family offices have been established in the United States for more than 30 years.

It is difficult to get a precise handle on the number of single-family offices in Canada. In my discussions with other advisors serving family offices, we estimate several hundred exist, and many more are about to start this journey.

In addition, families for whom the creation of a single-family office does not fit their goals are turning to the growing number of multi-family offices to assist them.

My perspective of the family office space is based on 25 years of experience advising business owners, including a period running a family office for a multi-generational enterprise family. In addition, earlier this year I became the Canadian Market Leader for Family Office Exchange (FOX), and the experience has offered me even greater insight into the state of family offices and the role they play in successfully managing intergenerational wealth and succession planning.

If you are not already aware of FOX, it was founded more than 30 years ago in the United States to serve as a thought leader and network for family offices and their advisors. Today, FOX serves more than family offices; it also helps families achieve their aspirations by offering thought leadership and solutions pertaining to strategic thinking, developing human capital, managing technology, governance, best practices and inter-generational succession.

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Three types of families

Canadian family offices are similar to those in the rest of the world, but they also possess many unique aspects. Similarly, our families fall into three groups: business families, financial families and enterprise families.

As the name suggests, the “business” still plays a large role in the life of a business family. Financial families, in turn, have typically experienced a liquidity event and are now focused on investments. And the enterprise family describes a smaller number of families who think in terms of multi-generational togetherness through continued family ownership and related governance of their businesses and investments.

All three are also active in philanthropy, particularly the financial and enterprise families that have endowed private foundations, often following a sale of a business.

Four types of capital

Notwithstanding the differences among these groups, all three are focused on preserving and growing all forms of capital – human, intellectual, social and financial.

Whether the family is led by a founder, a principal or the next generation, in matters of succession it needs to develop human capital of each branch and generation within the family. It is also looking to enhance intellectual capital by attracting strong professional management teams who are supported by strong systems and effective governance.

Canadian families are very private about their affairs, perhaps more private than families in other countries.

As for social capital, the relationships and reputation of the family have a direct influence on their partnerships with other families and advisors. And, of course, given the greater complexity of investing today, and the need to fund future financial commitments to the community as well as family, financial capital is always top of mind.

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The family office plays a critical role in helping the family navigate these four forms of capital. However, the areas of human and social capital are personal to the family and sometimes are managed outside of the family office.

Relevant themes today

In discussions with Canadian families and their family offices, four recurring themes emerge:

  • Developing the next generation or “Rising Gen”: Canadian families are increasingly focused on developing the Rising Gen to become engaged stakeholders who, over time, can develop the skills necessary to play critical roles as leaders, shareholders or stewards of the family enterprise.
  • Impact investing: This involves the need to introduce sustainability, climate risk and ethical practices into the family’s investment strategy in a more purposeful manner. Led often by a member of the Rising Gen, this effort expands a family’s use of charitable giving to make an impact and extends to the management of financial assets and investment capital as well as searching for new ventures and private growth opportunities that achieve an attractive ROI, both financial and societal.
  • Direct investing in private companies: Provides family offices the ability to diversify their investments through the acquisition of high quality private firms, whether it is a majority or minority position. For those who have recently sold a business, direct investing seems more akin to their past lives than other investment strategies.
  • Use of outsourcing: Given a variety of factors – including the complexity and related cost of staffing a family office, availability of talent and improved third-party offerings – families and family offices are seeking outsourcing solutions to improve the service offered to the family.

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What makes Canada different?

The concerns of Canadian families and their family offices differ from the rest of the world in a few key areas.

First, the creation of substantial wealth started later in Canada and generally tracked the implementation of the Free Trade Agreement with the United States in 1989 and the growth in population over that time. Our entrepreneurial class started to reap the benefits of their endeavors only in the last 10 to 20 years.

Second, Canadian families are very private about their affairs, perhaps more private than families in other countries. This could be the result of Canada being in the early stages of the wealth creation cycle
or the general character and demeanor of Canadians.

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Third, the 21-year life of a trust that is used in our tax planning creates a need to plan well beyond a typical business planning period to anticipate how beneficiaries will fare in the future. This is much different than the multigenerational vehicles available to families in the U.S. and elsewhere abroad.

Canadian family offices seem to be at an inflection point. The next five years will see a marked evolution in how families structure their family offices to meet the needs of the people they serve.

New enterprise families will emerge and, given the expansion of private equity bringing liquidity to family-owned businesses, many new family offices will be created. Indeed, the future for family offices in Canada is very bright.

Ed Giacomelli is an advisor to multi-generational business families and serves as Canadian Market Leader for Family Office Exchange (FOX), a peer-to-peer network comprised of more than 330 families and 100 advisor firms located in 25 countries. He is based in Toronto.

Ed Giacomelli
Ed Giacomelli

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