Family offices play a vital role in managing the financial, operational, and personal priorities of ultra-high-net-worth families. Beyond wealth management, they are crucial in preserving family legacies, preparing future generations for leadership, and aligning entrepreneurial and philanthropic goals with a shared vision.
However, not all family offices are alike. First- and second-generation family offices differ significantly in their investment priorities and approaches, shaped by their unique circumstances and objectives. For investment firms, understanding these distinctions is essential to building meaningful and enduring relationships with family office clients.
In this article, we’ll explore the distinct investment priorities and leadership approaches that differentiate first- and second-generation family offices. By the end, you’ll have a clearer understanding of how these differences can guide investment managers in building lasting partnerships with family office clients.
First-Generation Family Offices: Entrepreneurship, Concentration, and Growth
In first-generation family offices, leadership often remains firmly in the hands of the founder, reflecting the entrepreneurial mindset that built the family’s wealth through innovation, strategic vision, and calculated risk-taking. Founders are deeply involved in decision-making, with nearly 90% of family offices reporting active family participation, according to the J.P. Morgan 2024 Global Family Office Report.
This entrepreneurial mindset is evident in their asset allocation and portfolio construction, which often centers on the wealth-generating assets that built their financial foundation, such as single-stock positions, operating businesses, or real estate. These core holdings typically represent a substantial share of the family’s net worth, providing both growth potential and liquidity. This financial stability enables first-generation families to think long-term and pursue higher-risk, less-liquid investments. Consequently, their portfolios show a strong preference for alternative investments, including private equity, venture capital, and direct investments in private companies.
The Neuberger Berman Family Offices 2024: Adjusting to Post-Inflation Markets Whitepaper finds that first-generation families allocate over 55% of their portfolios to alternative investments, with buyouts (27%) and venture capital (11%)—both high-return, highly illiquid asset classes—comprising the largest allocations. Meanwhile, traditional public equities account for just 30%, with 18% invested in international and emerging markets equities and 9% in U.S. large-cap stocks. Fixed income makes up approximately 15% of their portfolios, reflecting a relatively smaller emphasis on conservative investments.
Second-Generation Family Offices: Professionalization, Preservation, and Diversification
As leadership transitions to the next generation, family offices often adjust their focus. Second-generation family offices emphasize professionalized management, wealth preservation, and sustainable growth, adopting a more collaborative and diversified investment approach.
While second-generation families continue to prioritize alternative investments, their approach is more balanced and conservative than that of their predecessors, focusing on stability and predictable returns. According to Neuberger Berman, second-generation families allocate 51% of their portfolios to alternative assets, similar to first-generation families. However, private credit (17% versus 0%) and private real estate (4% versus 1%) play a much more prominent role, as these lower-risk, income-generating assets help offset reduced exposure to higher-risk investments like buyouts (10% versus 27%) and venture capital (4% versus 11%).
Second-generation portfolios also dedicate 28% to traditional public equities, broadly diversified across U.S., international, and emerging markets. Notably, exposure to REITs is higher at 9% (compared to 2% for first-generation families), reflecting a balanced approach aimed at stability and diversification. Fixed income allocations average 21%, slightly higher than in first-generation portfolios, aligning with the overarching goals of wealth preservation and steady growth.
Striking the right balance between growth and preservation remains a central priority for second-generation family offices, ensuring they honor the family’s legacy while adopting a sustainable approach to wealth management as assets transition between generations.
Bridging the Generational Gap
Generational differences significantly shape how family offices approach leadership, investment strategies, and long-term goals. First-generation family offices, driven by their founders’ entrepreneurial spirit, prioritize high-growth investments such as buyouts, venture capital, and direct holdings. In contrast, second-generation offices emphasize diversification, professional management, and wealth preservation, aiming for sustainable growth across generations.
For investment firms, understanding these generational distinctions is crucial. As family offices play an increasingly influential role in global markets and wealth transitions to the next generation, firms that bridge these generational gaps will be better positioned for long-term success.
https://www.dakota.com/resources/blog/generational-differences-among-family-offices-insights-for-investment-managers
