Family Office: Where to Focus Investments

For centuries, family business systems have proven their capacity to transform their environment through value creation, long-term vision and transgenerational legacy. In order to grow, family-run businesses require mechanisms established through family offices to optimize their wealth and its benefits.

The initial objective of a family office is to assist the owners of such assets in their tax and investment strategies, as well as legal and testamentary matters. However, as the number of people and needs grows, increasingly sophisticated management models are required. In the last decade, the relevance of family offices has been equated with that of a board of directors, which safeguards the company’s destiny, or a family council, which addresses business-related family issues. But, what has changed recently? Where are entrepreneurial families investing their money?

Since predicting the future in our VUCA (volatile, uncertain, complex and ambiguous) era is impossible, family businesses that prepare for the long term know that they need to secure their strengths in difficult times. This usually translates into foregoing financial market speculation, investing in their capacity to generate value, diversifying and preparing for the right time to capitalize opportunities.

Even though family business complexity does in fact increase naturally as these systems evolve, different lifestyles demand more alternatives in order to provide the benefits generated from specific assets. With its increasing consumerism, more demanding ways of life and greater mobility, society has displayed a clear trend towards multiple and varied ways of investing capitals.

First, we need to understand the purpose of the entrepreneurial family to know how it builds its wealth. The purpose is the starting point for establishing a growth strategy. If the aim is diversification, for example, one option would be to create private capital that makes it possible to acquire or invest in a company that is already in the market. If the idea is to promote innovation to make the family business attractive to the new generations, then creating venture capital for new undertakings or business models is advisable.

The investment portfolios managed by a family office can be highly diverse. Their composition will, of course, depend on the family's risk profile and wealth, including private capital, equity funds, real estate and even collectibles. There is no single definition of or rule for creating a family office, but experts consider that, for it to function properly, the family’s total assets must be over 50 million dollars (Deloitte Corporate Governance Bulletin, 2015).

Without doubt, entrepreneurial families’ investment decisions carry significant weight in the global economy. According to the 2019 UBS & Campden Wealth Research global study, 80% of family office executives believe that the wealthiest families will play a key role in tackling the global challenges that have historically been on government agendas. Ninety-one percent of them are concerned about trade relations between China and the United States and assume that their economic consequences will be enormous in 2020, a factor that will most likely influence their investment decisions.

Just as each entrepreneurial family has a unique and unrepeatable handbook, the functions of a family office should be established considering not only the environment, but, above all, the values, principles and dreams that guide families in their decision-making process. The most important thing is to be prepared for the challenges that continuously arise. Some investments will add to, while others will probably detract from, the family’s wealth. Lifelong formal and informal learning, incorporating flexibility in decisions and remaining true to the purpose of the business family is crucial.