Family offices consider AI outsourcing as they step back from expensive arms race
As large institutional investors increasingly use AI to support investment strategies, family offices may turn to external partnerships due to limited in-house capabilities
Adoption of AI is growing rapidly among family offices. But high innovation costs could encourage more partnerships with institutional investors and asset managers, as family offices eye proven investment analysis tools.
Alexandre Monnier, global head of family office advisory at Citi Family Office Group, says that as large institutional investors increasingly use AI to support investment strategies, family offices may turn to external partnerships due to limited in-house capabilities.
Families see significant AI and fintech innovation taking place among large institutional investors. This is driven by a desire not to "fall behind", Monnier says, which is pushing innovation, but it often costs hundreds of millions of dollars in additional capital expenditure.
Given their scale, some family offices may not be able to replicate these AI capabilities in-house. They are instead considering external partnerships to develop AI agents.
"I think you're going to start to see some financial institutions willing to work with [family offices] by giving them access to some of their capabilities, and I think [there's] going to be much more room for partnering," Monnier says.
These partnerships could include "renting" AI agents from financial institutions and combining them with a family office's internal data.
Family offices are also likely to consider AI-enhanced investment strategies. New research by Mercer published in May finds that more than half of asset managers (55 per cent) have integrated AI into at least one of their strategy's investment processes.
Large asset managers are also making headway in developing their own proprietary AI investment tools.
Last year, Schroders rolled out ContextAI, developed to synthesise large environmental, social and governance records to inform clients' investment decisions. BlackRock, meanwhile, has developed its internal AI research platform Asimov, which can sift through company filings to create portfolio insights.
Families held back from AI by privacy concerns
Monnier's comments follow Citi's new research on AI use among family offices. Citi found that AI usage among family offices doubled between 2024 and 2025, rising to around one-fifth of families from one in 10.
A fifth (22 per cent) of family offices report using AI for investment analysis, compared with three-fitths (58 per cent) that do not yet use AI for that purpose. A further fifth (20 per cent) are currently developing their AI capabilities for investment analysis or forecasting.
However, only one in 10 are using AI tools for legal, risk management and compliance tasks.
This is "trending up" from a low base, Monnier explains, although Citi's report adds families are still facing an "acute strategic dilemma" over whether they buy tools or build their own.
The report says families looking for partnerships are valuing "software maturity", "data readiness" and tools that can be integrated easily into operations. However, they face a "tension between moving quickly and managing costs".
Privacy has emerged as a top priority for family offices, with end investment decisions currently always managed by "experienced humans".
While the private bank says other types of institutional investors are now looking to deploy AI for investment returns, family offices are "focusing on automating operations while preserving their privacy and maintaining a personal touch".
"That's one of the differences between AI in the family office and AI in the institutional investor world... they've already moved on to using AI for alpha generation," Monnier says. "And the main thing I think that's holding back family offices is privacy concerns."
Citi adds that AI tools that "cannot guarantee data security are unlikely to be adopted", while it found three in 10 (28 per cent of respondents) cited privacy concerns and cybersecurity as a barrier to new technology adoption.
On top of this, limited resources in single-family offices mean professionals do not have the ability to scale technology resources like other types of institutional investors.
Families are also citing low internal expertise (57 per cent) and a lack of awareness about the AI tools available (34 per cent) as key barriers.
AI strength a key partnership differentiator
Citi says institutional investors have moved on from using AI for back-office operations, like document processing and compliance monitoring, towards front-office investment decisions.
These include the creation of "high-quality investment thesis drafts in days rather than weeks" and using tools to "synthesise" large quantities of information to find "hidden insights".
AI agents are growing in popularity because they can autonomously plan, execute and adapt to multi-step tasks, enabling the automation of complex workflows from start to finish.
“I don’t think we’re far from seeing AI also as being another differentiator that these firms will use to potentially attract more family offices to invest with them”
Monnier envisages investors having separate AI agents that can interact with each other across risk management, portfolio construction and analysis to make sophisticated recommendations.
Partnerships with asset managers and other financial institutions could give family offices access to proven enterprise-grade AI technology, as more grow wary of the costs associated with continual in-house innovation.
"We're starting to see that AI is going to be a bit of an arms race where [it will] be very expensive to remain on the leading edge," says Monnier.
"For front office investments, [they may] realise that maybe the best capabilities are outside of the family office and the best way to tap into them is to work with others," he says.
Collaboration on AI could also act as a bridge between family offices and other investors as they look to participate in broader partnerships and co-investments.
"I don't think we're far from seeing AI also as being another differentiator that these firms will use to potentially attract more family offices to invest with them, to partner with them," Monnier says.
Citi notes that some family offices are coming in as early investors in tech start-ups, gaining insights which can "help them develop AI governance policies and institutional-grade risk management".
But take up of AI investment opportunities still remains low.
In a February survey of 200 family office professionals, Ocorian found only 7 per cent of respondents around the world were looking for AI investment opportunities. However, 86 per cent were employing AI technology for operational uses, while three-quarters (74 per cent) expected they would increase their AI investments.
Michael Harman, commercial director for the UK and Channel Islands at Ocorian, said: "Adoption of AI is still in its early stages across the sector, and most are not currently investing."
Some family offices tracked by MandateWire are exploring AI start-up investments.
In the middle of last year, Annamaria Koerling, the founding partner of family office advisory Delfin Private Office, said AI start-ups were becoming a new category as part of venture capital investing, and that family offices were "circling around".