Takeaway 4: Direct investments are continuing to be sought after by family offices and requiring a disciplined approach as new challenges and opportunities arise.
In tune with wide-ranging investment objectives, and the ability to deploy the patient capital necessary for companies to evolve and expand, direct investments are continuing to be a natural fit for well-advised family offices. Venture, growth equity and pre-IPO investing are some of the myriad opportunities that are available.
However, with direct investing it is always crucial for family offices to focus on due diligence as well as the fundamentals of a company or investment vehicle, and ascertain whether it is a good strategic fit with the rest of their portfolio. Solid opportunities currently exist for finding good companies at lower valuations in the current environment. So, know your strengths and execute strategy around it. Deploy capital but do so in a prudent way to ensure that companies with viable ground-breaking ideas keep growing. In terms of sectors, clean energy, technology and healthcare spring to mind again. Asian ventures and start-ups have plenty of potential. But the largest regional market – China – remains a tough one to crack if you are not a Chinese citizen. On the other hand, there are interesting opportunities in other Asian emerging markets, and a vibrant technology landscape in Singapore. Despite current market conditions, valuations remain high and corrections are to be expected. It is best to ignore the hype and headlines to seek out good companies with experienced and sound management, solid business models and reasonable valuations. 1
Takeaway 5: Family enterprises need to adopt five transformation strategies to adapt to turbulence and transformation in the 2020s.
Family enterprises are facing a perfect storm, with significant internal and external headwinds. Only those ready, willing, and able to adapt to this new environment will flourish and succeed. Wealth stewardship must be redefined for turbulent times.
Family enterprises are weathering challenging external forces of change including: environmental degradation and ecological disruption, technological advances and digital disruption, globalization and deglobalization, and socioeconomic and political influences. Furthermore, younger generations also want a voice and a seat at the table in these transformative times as they often bring an insightful understanding of the disruption at play and a willingness to innovate. In a fast-evolving world, where families are going is bound to change. Therefore, knowing who they are and what they stand for is more critical than ever. Enterprising families need to build value according to their values. Five transformation strategies can help family enterprises adapt and implement this value and values-driven model: (1) reorient and retool your owners; (2) get ready to pivot; (3) accelerate your digital transformation; (4) make social impact a priority; (5) engage and revitalize your family.
Takeaway 6: The power of diversity in human capital and portfolios is still greatly untapped
The finance and investment community would reap great benefits from further promoting diversity in its human and financial capital.
“You can do well by doing good” – performance and cultural advantages result from diversity. As of September 2021, Women- and minority-owned firms managed only 1.4% of the over $82 trillion U.S.-based assets under management.2 Diverse viewpoints lead to more discussions, which can result in better business outcomes and more profitable returns. Biases may be implicit, not intentional, so you need to intentionally have a diverse group of professionals on staff to recognize implicit biases and promote further diversity. Take accountability, even if it is for a firm you work with instead of your own, to help initiate change. Believe in accountability and establish targets to help initiate change for “what gets measured gets done.”
Takeaway 7: The war in Ukraine will have profound and long term geopolitical impacts on the global economy
Global prices of commodities and supply chain distortions will be acutely felt in countries reliant on Ukrainian grains, primarily in Africa.
The war has revived the importance of NATO and re-emphasized the leadership role of the US. Ordinary Russians, and the economy as a whole, continue to suffer as Moscow is hit with multi-layered international sanctions. Several multinational corporations have also left Russia with little prospect of an immediate return. Despite this active conflict, the US-China strategic conflict remains a greater concern for the global economy. This situation is exacerbated by the challenges associated with investing in China, despite its potential, and the deglobalization impact on supply chain issues. One positive note in this age of nationalism lies in the consistency of the US to continue to foster innovation. 1
Takeaway 8: Proactive mitigation of physical, cyber and personal threats is vital but only effective if revisited regularly
Threats exist at all levels of a family enterprise and there needs to be a holistic approach led by a security assessment to develop bespoke coverage.
This may include protection from cyber, physical, personal, health and natural threats, and mitigation of risks arising both externally and internally within the enterprise. Many family offices consistently have blind spots on security, particularly when it comes to internal threats. Oftentimes, the internal threats are unintentional. For example, an executive clicking on a phishing email or failing to do regular background checks on personnel. Being on your guard and exercising a high level of caution is crucial. Of course, approaches to countering threats are different for each family office, and plans should be drawn up diligently based on a risk assessment, family profile, net worth, location, and potential regional and commercial vulnerabilities.
Takeaway 9: Family office CEOs, hired for their technical expertise, typically succeed based on their ability to play six unexpected roles.
Family office CEOs, hired to preserve the wealth, need to focus increasingly over time on ensuring family unity and continuity.
In a field that still has the characteristics of a cottage industry, seasoned family office executives have rich experience to share to help their peers succeed in their role. A key lesson learned is the gap between the duties they were hired to execute and the key roles they end up playing. Family office leaders must be prepared to serve as risk managers, transition managers, conflict managers, educators, and talent managers, including ensuring their own well-being. These six responsibilities are critical to help a family thrive with their wealth and successfully transfer wealth across generations.
To learn more about Citi Private Bank’s Family Office Leadership Program and our range of services for family offices, please contact us.