Welcome to this new column in which I will provide readers with an insider’s view of how family offices manage their assets. As a graduate of economics, I have applied my knowledge analysing economic and financial trends and applying it to asset allocation and portfolio construction. I have benefitted from the experience of working in the tranquility of a bank’s research department, the pressurised environment of short term trading desks at investment banks and hedge funds and been CIO to two investment firms. I want to share those experiences by bringing my own perspectives on economic and financial market developments and what it means for asset allocation. The Investment lens is long term in nature because that is the focus of family offices.
Family Office is the term given to a team of people employed to manage the assets of wealthy families. The size of team and range of activities varies enormously, and their collective wealth has increased as a proportion of total wealth. This has made family offices an important part of the capital supply chain. The growth of family offices is occurring in both the developed and developing world with the latter registering the fastest growth rate reflecting the economic success of those economies over the last twenty years.
It is not possible to generalise about the modus operandi of family offices. However, there tends to be a general demarcation of investment aspirations and behaviour between family offices which have existed for several generations and those that have created their wealth recently. In the case of the older family offices the owners behave more like trustees than owners of the wealth whereas the latter act as owners of wealth. The distinction is important as trustees tend to have a more cautious approach to investing than owners of capital. The reason for this difference in behaviour is that newly created wealth will often be the result of an entrepreneurial activity and the owner will be more familiar with business risk than financial market risk. Older family offices will have established a team of investment professionals accustomed to investing in financial markets.