How a new generation of sports and entertainment stars are changing the narrative when it comes to wealth
Markets and Investments, Family Governance and Education
Italy’s family businesses are the bedrock of the country’s economy, with a long track record of sustaining and building upon their success as each new generation takes over. However, younger family members often have a long wait to take the helm – and, increasingly, many are seeking to take on other responsibilities for the family in the meantime.
In all, there are around 11,600 family businesses in Italy with annual revenues in excess of €20 million, accounting for two-thirds of the country’s small- and medium-sized enterprises.1
Today, however, these businesses are largely run by the older generation. Just one in four Italian businesses with annual turnover of more than €20 million have even one board member who is younger than 40. By contrast, 29% of directors are 70 or older – well above the 19% in Germany and 10% in France, for example.2
The data is in line with AlTi’s own observations. The leaders of family-run businesses are often reluctant to cede decision-making powers to the next generation. While that may ultimately make the inevitable leadership transition more challenging, the current generation is, for now at least, often uncomfortable about bringing potential successors into management roles.
A new role for the next generation
Importantly, however, these younger family members are not just sitting around waiting for the top jobs to become vacant. They’re determined to play a leading role in their families’ affairs – not least so that they have an opportunity to acquire the crucial skills and experience they will need when they do finally take over the business.
One area where there is significant potential for younger family members to take on more responsibility is in the management of the family’s financial affairs – including overall wealth and investment, tax and succession planning. This work may require more time and effort than the family’s senior members can spare while they remain focused on running the company.
In some cases, younger family members are keen to take direct control. Research from Deloitte suggests that 32% of European-based next-gens have already assumed control of the family wealth. Another 34% expect to do so over the course of the next 10 years.3
Alternatively, these individuals are appointing wealth managers and financial advisors – and then working with them on an ongoing basis. They become the family member with primary responsibility for managing these relationships and, ultimately, ensuring that the family wealth is in safe hands.
Naturally, different families choose to work with different types of advisors. But one clear trend in Italy in recent times has been the rapid growth of family offices – both single-family offices dedicated to serving an individual family, and multi-offices that work with a number of clients.
As a result, the family office sector has expanded rapidly over the past 10-15 years4, with more than 200 now in existence across Italy.5 In a bid to provide a more complete service, a limited number of family offices, including AlTi, are able to play several crucial roles in addition to financial management, including:
Bringing a new perspective to investing
Inevitably, younger members of the family bring a different perspective to wealth management and their work with advisors and family offices. This is likely to have a significant impact on the way in which family wealth in Italy is managed in the years ahead: As the younger generation takes more responsibility for how and where the family money is deployed, its influence will increase.
One particular focus is likely to be on how families can use their wealth to have a positive impact on the world around them – most obviously in the context of climate change, but also across a wider range of environmental, social and governance issues. Research from Deloitte suggests that millennials – broadly, those currently aged between 27 and 42 – are more focused on these concerns than their older peers.6
For example, six in 10 Italian millennials report that they have felt anxious about the environment over the past month. This preoccupation is a significant influence on the choices and decisions they make, from what they eat and wear to the kind of work they want to do. Similarly, many are focused on societal issues such as diversity, inclusion and equality – including the issue of wealth inequality.
This is likely to see the younger generation view their own family wealth differently, and catalyze a change in direction. Demand for investment products that aim to deliver social good as well as financial return may rise. Impact investing and outright philanthropy are also likely to become more important.
Advisors and family offices will need to be sophisticated enough to accommodate these views, and to work with the younger generations to help them realize their vision on asset allocation. But this will be a balancing act – different members of the family may have different views, so it will be important to identify widely shared core values and beliefs that can underpin the approach.
Another area where younger family members may bring a new perspective concerns asset allocation in a different sense. There is good reason to expect them to be more interested in backing early-stage, privately owned businesses. And while technology start-ups have been slower to take off in Italy than in some other European countries, there has been something of a surge over the past 12 months, as young entrepreneurs have followed the example set by their peers in other markets.
Younger-generation Italians – very often more technology literate than their parents’ generation – will naturally be drawn to such stories. That will focus attention on investment in private companies, both directly and through venture capital and private equity structures.
Indeed, many family offices already recognize the opportunity here. Around 14% of Italian family office assets are invested in private equity assets, with surveys suggesting that the majority intend to increase those weightings. Single-family offices in particular have become important funders of early-stage companies, making 94 investments in such businesses since 2016. While the value of those investments was only disclosed in two-thirds of deals, they collectively were worth €541 million.7
Nor are younger Italians only interested in the domestic narrative. Many are internationalist in their outlook, often having spent time abroad for education or work. Older family members, by contrast, are less worldly in this regard: The average director of a family-run business in Italy has spent only two-and-a-half years working abroad, compared with an average of almost seven years among directors of non-family businesses.8 Inevitably, this international experience will also influence younger family members’ attitudes to wealth management and asset allocation.
Laying the foundations for the future
While younger family members will undoubtedly bring a different approach to investing, it would be wrong to assume they will be less risk-averse. Indeed, it is likely that many of these younger Italians will be even more focused on building strong guardrails and structures around the family’s wealth and financial planning activity – and ensuring they themselves are well informed.
Younger Italians are ready to invest more time in financial education – and to ensure their peers are learning too. Family offices are already having to invest in resources to meet this demand: Two-thirds of single-family offices in Italy say they are now providing this service.9
Similarly, many younger Italians are acutely aware of the trust and responsibility that the rest of the family is putting in them – and are determined to work in everyone’s interests, rather than pursuing their own agenda. Their approach to wealth management and their relationship with key advisors will be defined by this sense of familial responsibility.
To this end, family offices are increasingly being asked to advise on structures that formalize the process of managing the interests of multiple family members across more than one generation. For example, 81% of family offices now have a role in advising on how to set up structures such as family councils.10
And this in itself is where family offices come into their own, being ideally positioned to understand the complexity and needs of a multi-generational family – communicating and building trust with all members, not least the next generation.
In time, of course, many of these younger Italians will step up into senior leadership roles in the family business – but not until the older members of the family are ready to pass the torch. Meanwhile, the next generation’s increasing role in managing their family’s financial future will provide them with skills and learnings that prove invaluable when they do take the helm, and change the way family money is managed.
Sources and references:
1/ AIDAF / SDA Bocconi Family Business Observatory
Giorgia is a family office expert with a deep understanding of family offices’ needs and dynamics, their structuring and development, and their relationships to the many professionals associated with them. She served for nearly 10 years at one of Italy’s most distinguished single-family offices and later led our Milan office.
Markets and Investments, Family Governance and Education
By Jill Shipley
Family Governance and Education
By Jill Shipley & Harmony Abney
Family Governance and Education
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