While the last few years have been all about finding an efficient and economical solution to any and every problem, 2022 is about ensuring every solution is environmentally sustainable and absent of risk.

It was once all about off-shoring your supply chain, embedding a lean manufacturing strategy and embracing globalisation. China was the home of the supply chain, Kiev the home of outsourcing but now, growing climate concern, political instability and worldwide conflict are changing everything, so much so that 2022 is being seen as the year we undid the rest.

  • Shortening supply chains:

Economic turmoil caused by COVID-19 exposed many vulnerabilities but one of the biggest was the risk of having a high amount of inventory held in a global supply chain. For Family Offices with operating businesses or investments in manufacturing and associated fields, this highlighted a great risk.

The supply shock that started in China has only worsened with consistent trade restrictions and now, ripples are appearing across Europe following the conflict in Ukraine.

Manufacturers are now under pressure from their investors to increase domestic production, grow employment in their home countries, reduce or eliminate dependence on risky sources and rethink a fully global supply chain. Many US organisations are opting for a China + 1 strategy, trying to monopolise the effectiveness of an Asia-based supply chain with a local contingency.

This will take time however. Furniture and clothing could logistically make a move closer to home but for the automotive and pharmaceutical industry, this is almost impossible. Car makers do not know how to create the touchscreen displays their navigation systems require nor do they have the capacity to create the microprocessors needed to control the engine. Similarly and vitally, biotechnology companies that make the coronavirus vaccine amongst others rely heavily on NDA and RDA sequences to build their vaccines upon and these reagents derive almost entirely from South Korea and China.

Family Offices with operating businesses will, subject to the trends of the last few years, now need to map out their full supply chain and seek out their global vulnerabilities but while this had started as a geopolitical debate, concerned with crisis and conflict, as it clashes with climate concern, it becomes an even bigger conversation.

In 2022, organisations and Family Offices alike will need to consider their sustainability practices and the reputation it allows. This will involve lowering carbon footprints and making decisions that, make a statement. Importing parts and production where avoidable will present a dilemma and so the trend of importing, offshoring and saving money during the process will certainly be reversed.

  • Onshoring your Family Office:

For years, Family Offices have sought the comfort and tax advantages of offshore jurisdictions but this too is changing.

Travel restrictions in many offshore jurisdictions remained in place for quite some time following the lifting of restrictions in many of the major financial centres which prompted a conversation about moving onshore but it is the prospect of more regulation that is bringing many Family Offices and their associated trusts, home.

Onshoring is becoming an increasingly popular solution for Family Offices who are seeking a base jurisdiction with economic substance. Some 20 years ago and the Cayman Islands to use an example was a popular option because of its tax neutrality, that and the fact that it offered data confidentiality given there was no requirement to disclose investor identities to third parties. Both factors are changing and KPMG’s Teo Wee Hwee summarises this by saying “investors are increasingly not comfortable being associated with a tax haven. The introduction of various regulations in the Cayman’s also makes setting up and maintaining a fund there a lot more expensive.”

Money and regulation aside and one Family Office Principal has opted to onshore for credibility. He spoke at an event of ours about wanting to grow his portfolio and operating business slowly and organically to ensure it was a success and pleaded with the audience to do things simply and well rather than complicated and lacking in substance. He used the example of opting for an on-shore base for his business and how while initially considering off-shore jurisdictions for taxation benefits, said opting to work from London has saved him time, money and hassle while offering him more credibility than he would have received elsewhere.

  • Big ticket items:

On a consumer level, ignited by climate concern and fuelled by the cost of living crisis, people are moving away from purchasing bit ticket items like houses and cars and moving more towards a service level.

During the pandemic, socialising and travel expenses were for some, stowed away for saving and for others were reattributed to spending on things. Be it furniture for house renovations, or big ticket items like houses themselves – the property market soared during the pandemic but of course, since restrictions have been lifted we have seen the spending trend reverse and consumers focus on experience and service. The reversal has been accelerated by the cost of living crisis with deposits for houses and cars implausible for some and climate is the biggest concern for others who are consciously buying sustainable items.

March’s retail sales report released by the US Census Bureau revealed that motor vehicles and parts dealer sales were down by 1.2% while electronic and appliance sales were down by 9.7%. Echoing point number one and US Manufacturing also fell on the Institution for Supply Chain Management Manufacturing Index to the lowest level since September 2020 in April to 55.4.

Contrary to the conversation about climate, US Economist Michael Pearce recently said: “This is mostly due to weakening demand amid a broader slowdown in global manufacturing rather than a supply crunch.”

On the other side of the spending coin is Family Offices. While consumers are spending more on less, or perhaps, spending more to do than to receive, Family Offices are spending on big ticket items they wouldn’t usually in the face of inflation.

With cash and short-term investments losing value, the predictable and sometimes best response is to spend. While for consumers this means stocking up on things that won’t lose value, for investors, it means making capital investments that otherwise might have been put off until a later date.

Rising inflation means higher prices and higher prices means higher interest rates. Investors should find a way to hedge the risks of inflation and the best way to do so is to invest in asset classes, best equipped to deal with the shocks of rising interest rates from Treasury Inflation-Protected Securities to commodities and equities. While this has traditionally been gold or other precious metals, their recent volatility can cancel out their benefits and equities have been among the best hedges against inflation.

Climate, the cost of living and conflict are together reversing many trends that existed in the lead up to 2022. While spending, supply chain and onshoring are three, there are several more from ESG and moving away from Philanthropy, 40/60 models and their place in the past or expanding Family Office Teams making them bigger than they ever have been before.

What trend do you anticipate to reverse in 2022?