How focused are family offices on returns?

How focused are family offices on returns?

Investment returns are important to clients – but are rarely their chief priority.

It will be of no surprise to anyone that investment returns are important to our clients. No-one wants to see their wealth eaten away by inflation or diminished following a failed investment. Our clients, mostly first-generation HNWs, have worked hard to create their wealth and would be horrified to see it frittered away. Holistic wealth preservation remains at the heart of what we do.

Investment management, whether on a discretionary or advisory basis is usually one of the core services offered by a family office. While generating returns is clearly essential to our investment advisers, they will always manage client assets according to our guiding principle of targeting sensible returns for an acceptable level of risk. The amount of risk taken and the investment mandate will depend on the individual client their goals and circumstances

When it comes to investment allocation, individuals tend to be more flexible than institutional investors. This helps the pursuit of attractive returns. Some may decide to invest in property developments in London or even funds dedicated to alternative asset classes such as our ‘Paradis Wine Fund’.

Investment portfolios and standalone opportunities are not the only way to realise meaningful returns on assets. Careful wealth structuring can itself lead to significant savings and tax efficiencies as well as helping to preserve, distribute and pass on wealth. Another secure option clients may opt for is the use of trusts or foundations in order to provide maximum protection for the assets involved. The concept of a trust developed from a desire to have divided ownership of an asset, when one individual owns a property from which another individual also benefits.

Trusts can consolidate different assets. This can be especially useful for people whose business includes numerous companies with no centralised system for management and control. The settler can retain powers over the trustees and businesses involved in the Trust structure.

Managing the portfolio – returns are not the whole story

It is the primary aim of our investment teams to generate the best return they can within the agreed risk parameters for a particular client but this is only to be part of the story. Family offices offer a far broader service to clients than investment management alone – our clients would rate investment returns in their top five priorities, but not usually as number one. Depending on a client’s priorities the investment approach will be bespoke, and no two clients will be the same. Some may have similar attributes but there is not really any such thing as a typical portfolio.

Many wealthy individuals remain sceptical about the prospects for large scale growth and very few family offices are looking for capital growth (as opposed to capital preservation). This is true notwithstanding that capital appreciation is not generally in a family office’s remit.

For those who are focused on capital growth the choice is obvious – the only asset classes providing long-term capital appreciation are equity, real estate and high yield bonds. Those asset classes performed well, particularly in developed markets, until recently. Family offices had to invest in these areas if they were interested in positive real returns. Now the focus is shifting ever more towards emerging markets.

Counterbalancing the desire for good returns is the equally important as the need for risk management. Entrepreneurs take on considerable risk in their businesses and are eager to preserve the wealth they have accrued. It is also common for new HNW individuals to have a high exposure to one particular country – usually the one where they have made their money. It is the role of the family office to advise how best their assets should be spread on a global basis to reduce risk through geographic diversification.

The family dynamic

Working with a family is not like working with an institution, and the type of advice and service given must reflect this. Family wealth is known for drying up over three generations, and proper succession planning tends to sit at the heart of a family office’s core services. The obligation to manage money for a collective rather than one individual or institution is one of the key factors which shape the advice we give to our clients. Conversely, institutional investors are generally restricted by a specific mandate and often are not able to act independently.

Refreshingly for those accustomed to the city’s obsession with short-term reporting, individuals are more focused on long term value generation and wealth preservation. Clients tend to be happy to lock money up on a medium to long term basis, but they need enough cash to live on. This must be taken into account by their advisers. In particular, individuals need income as much as they want to see capital growth, so this can dictate the nature of investments or instruments held in their portfolio. We can provide the necessary advice across any investment that fits their goals, regardless of the asset class, size or deal length; from private investments through to infrastructure projects.

A broadening repertoire

While investment management and wealth structuring still sit at the core of the family office proposition, the evolving needs of today’s global wealthy mean that family offices need to broaden their repertoire of services. At Oracle Capital Group, clients can draw on a broad range of in-house expertise from under one roof, which appeals to today’s time-poor wealthy: clients come to us to help manage their legal cases, for asset financing, insurance, to find them property in a new city or even find a school for their children.

Philanthropy is a particularly good example of how a family office can help clients see returns which are far from financial. Wealth management is only the baseline of Oracle Capital Group’s service pack; we also offer philanthropic planning for our clients and help them to set up their own charitable foundations. We provide strategic advice, assist with the launch and most critically, connect our clients with trustees and potential supporters.

This approach also benefits our clients from a business angle. When clients expand their companies overseas and are looking for local success the European and American markets can be a difficult place to gain recognition. However, through showing charitable goodwill a company can quickly add value..

The success of our initiative illustrates a number of points; first, that returns sought by clients are not always monetary; secondly, that our approach must be client led; and thirdly, a good return for one client may not look the same as a good return for another client. Yes, if we are to undertake investment management on behalf of a client we must endeavour to deliver a positive return but this only tells part of the story. For a family office to succeed, it must think beyond pure investment management returns, knowing – and delivering – what matters to the client.

Should you wish to receive recommendations, ask questions or get in touch with our experts, please email us info@orcap.co.uk or call +44 (0) 207 725 6900

Most Recent News

UK Will Open New Business Immigration Routes

UK Will Open New Business Immigration Routes

UK Closes Immigration Route to Investors

UK Closes Immigration Route to Investors