Posts by Fiducia Partners

Fiducia Partners Insights - Wealth Preservation and Succession in China

Wealth Preservation and Succession In China

January 24th, 2020 Posted by Family Wealth 0 thoughts on “Wealth Preservation and Succession In China”

According to Wealth-X’s most recent Billionaire Census report, there are currently around 285 billionaires in China although other reports suggest the figure is more like 400 with two more created every week – a growth rate almost double that of the US and Europe. 

That there is such vast wealth held by individuals is down to the Chinese culture and the policy measures that encourage and support the private sector. Such support began in 1978 when the then-leader delivered a speech proposing that China learn from richer countries, allow workers and peasants to get ahead and give enterprises the power to make decisions. This was the start for almost all mainland Chinese enterprises that are successful today. And with Chinese culture valuing family so highly, most of these private companies are family-owned, around 80%. Major Chinese companies that are family-owned include the Pacific Construction Group (90% owned by the Yan family), Amer International Group (100% owned by the Wang Wen-Yin family) and GTI Holdings Ltd (100% owned by the Sum Poon family). The collective yearly revenues for these three companies alone hits over $220 billion.

With this relatively recent freedom for enterprise, 97% of Chinese billionaires are self-made with an average age of just 56. This means that many are now thinking about succession likely to occur in the next 10-15 years leading to a phenomenal rate of new family offices being set up. Principles are ageing and so their priorities are shifting from wealth creation to preservation. And due to this wealth being relatively new, the concept of a family office is also new in China compared with Europe, the United States and other parts of Asia, where wealthy families have long used privately help firms to handle investment and wealth management decisions.

But this hasn’t put Chinese families off. On the contrary, in Campden Wealth’s recently released Chinese Family Office and Wealth Management Report 2020 they report that more than 75% of UHNW Chinese families established or joined a family office since 2010. The average net wealth of the families they studied was $943 million and of those not yet using family office services, 75% are interested in doing so. 

According to Campden’s report, most families have opted to manage their wealth through a single-family office (30%), 16% use a commercial multi-family office, 16% use a private multi-family office and 9% use a hybrid vehicle. But there are some key challenges with setting up a family office in China, the most pressing being a lack of experienced talent, which not surprising with it being a relatively new concept. 

And another key problem that many wealthy Chinese principles are facing is how to manage succession into the second generation. China’s One-Child policy that lasted for 35 years until 2016 has left many ageing principles with just one heir. Research shows that there are around three million entrepreneurs reaching the age of retirement and 80% of second-generation heirs have no desire to join their family’s business meaning many will have to look outside of the family for successors.

Aware of these challenges, I will follow with interest the development of family offices in China and how ageing principles will overcome the difficulties of sourcing talent and managing succession. I wonder if, in 30 years, the percentage of wholly and majority-owned family businesses will drop right down as families struggle to interest their sole heirs in taking over. 

Fiducia Partners Insights - Stewarding Your Family's Wealth.png

Stewarding Your Family’s Wealth

December 10th, 2019 Posted by Family Wealth 0 thoughts on “Stewarding Your Family’s Wealth”

Managing your family’s wealth is a great responsibility, especially when it has accumulated over several generations. You don’t want to be the generation that loses it. Where I know families that have made a success of passing on wealth for many generations what they all have in common is that they don’t view the wealth as theirs to do with as they please. Instead it is a legacy that they are entrusted with until the next generation takes over. In essence, they are stewarding the wealth, maintaining and growing it for the next generation to do the same.

But not all families succeed in this way. Where wealth is made, it is often lost in the second or third generation. Successful stewardship requires careful planning and a long-term view. I have previously written about long-term investments that don’t just span 10 years, but 50 or 100 years and multi-generational families whose goal it is to nurture wealth for future generations can make investments and plans for this length of time. They are not investing for their own retirement, but rather for the wellbeing of their children’s children and beyond. It’s one of the reasons why land and property are often staples of family office portfolios. 

But as well as investing smartly and for the long term, I would argue that the hard work required to nurture the wealth for the next generation would be for nothing unless you also take the time to prepare the next generation, both practically and mentally. Inheriting a financial legacy comes with a lot of pressure and responsibility so in terms of practical preparations, discussing your investment plan and strategy behind it, letting the next generation attend meetings with financial advisors and nurturing their financial acumen are all helpful means of preparation. And starting this preparation early not only gives the upcoming generation the best chance of success, it also means they will have at least some preparation if they inherit prematurely. I also know of families that establish ‘subfunds’ where the next generation can gain practical experience in managing money and investments, determining asset allocations, establishing goals and reporting to the family. 

Mental preparation too must not be overlooked. One of the key challenges facing wealthy families is the feeling of entitlement. Particularly when the family has held the wealth for several generations, and children grow up in privilege, it can be challenging to instil the message that creating and maintaining wealth is difficult and requires hard work and dedication. This is where exposing the upcoming generation to the hard work and responsibility that befalls the wealth managers is important. Children often hear that ‘money doesn’t grow on trees’ but seeing really is believing. Educating the upcoming generation about the family history and how the wealth was made and managed in the past also helps to instil a sense of responsibility and legacy. You want them to also think of themselves as stewards whose goal is to preserve the wealth rather than squander it. 

I also think it’s worth being mindful that the preservation of multi-generational wealth also depends on family dynamics. This is because depending on your management structure there may be several other family members on the board of directors or with decision making power and so nurturing family relationships and fostering consensus is important. A coherent family vision can be impeded by generational differences, geographical dispersion or different philanthropic philosophies. It is often helpful to have established governance processes within the family that can help promote a coherent vision and smooth transition to successive generations. Both informal family reunions and formal family stakeholder meetings to discuss values and plans are also key to preserving your legacy. 

Fiducia Partners Insights - When Leaders Won't Let Go Of Running The Family Business

When Leaders Won’t Let Go Of Running The Family Business

November 21st, 2019 Posted by Business, Planning 0 thoughts on “When Leaders Won’t Let Go Of Running The Family Business”

There are many stories in the family business world of leaders struggling to let the next generation take the reins. Or of leaders who pass on the leadership, but then undermine decisions and hang around not fully letting go. It is a complex situation as leaders that have founded the company or lead it to immense success may struggle to visualise anyone else running the business, even if it is a well-prepared heir. 

For example Rupert Murdoch, now age 88, still chairs News Corp and it seems he’s had several power struggles with his eldest son, Lachlan. Lachlan joined his father’s empire in his 20’s but quit working for News Corp in 2005, reportedly due to feeling that his father undermined him in management disputes. Then last year Lachlan was named chairman and CEO of Fox News but it’s been reported that his father is still struggling to let him take the lead, getting involved in Lachlan’s management decisions and ultimately undermining Lachlan’s leadership.

It is not uncommon for leaders like Rupert Murdoch – who have founded or led the company to success – to find it difficult to yield their power to the next generation. Leaders that find it hard to let go do so at the expense of the company. In delaying succession, the next leader might arrive unprepared, or is undermined if the ex-leader hangs around in the capacity of chair or senior advisor. All this can lead to waning company performance and criticism of the new CEO who may either step down or be fired. Relinquishing power can be made easier by having a strong succession plan and nurturing heirs to the point where they should feel comfortable letting go.

But succession and yielding power to the next generation can be done well in more than one way. In the LVMH group chief executive and chairman Bernard Arnault’s children each head different brands in the company, allowing them to demonstrate their leadership skills without being in the direct shadow of their father. This should build trust so that when Bernard is ready to step down he does so with the knowledge that he has successors ready to take the lead. 

In the UK, family-owned bakery chain Warburtons took a clean-cut approach when transferring from the fourth to the fifth generation. When the fourth generation of leaders passed on the leadership of the company, they did so all on the same day. The fourth generation of brothers who managed the company together decided to put in place a robust succession plan and then all left on the same day, handing full leadership over to their children, without trying to hold on or hang around. The company’s experienced team of managers then supported the new generation while they got used to the role. While this is an unusual approach, it does show the huge amount of trust they had in their heirs which in turn should give the new leaders the confidence to make decisive decisions.

While each taking different approaches to succession, what I suspect both LVMH and Warburton’s have in common is proper communication. Successful succession happens when the leading and next generation have an open dialogue and talk about plans and expectations.

Fiducia Partners Insights - Firing A Family Member From The Family Business

Firing A Family Member From The Family Business

November 7th, 2019 Posted by Business, Planning 0 thoughts on “Firing A Family Member From The Family Business”

Firing a long-term employee is difficult. Now imagine firing a family member. Unfortunately, this is sometimes necessary and while it will always be difficult, handling the situation in the right way will limit the damage, both to the business and the relationship. 

Prevention

To prevent this situation from arising in the first place would of course be ideal and when thinking about prevention I think family businesses should start with a clear policy detailing how employees, family or otherwise, can gain employment in the business, be promoted, how they must conduct themselves and what kind of behaviour would lead to review and termination. You might include a rule that no family member can work in the business unless they have had at least 5 years of work experience outside the business, or that they must hold a degree in a relevant subject. And even if they meet the criteria, asking family members to apply to the role like any other candidate allows executives to assess their readiness and aptitude for the role before hiring. As with any employee, you should have an employment contract and role description that their performance can be measured against. All this helps to put the emphasis on merit rather than family status. It must be clear that no family member is owed any position in the company and even once they have a position, they must work to keep it. If such values and procedures are established early on, if termination becomes necessary, they can be referred to and the termination process will be less personal and more procedural.  

In general, unless there has been an incident of gross misconduct, the behaviours that lead to a termination usually take place over a long period of time. Regular performance reviews will also help keep employees on track and prevent a termination from being a surprise to any party. They also provide a useful back-up if the termination is disputed. 360-degree reviews can also work well in a family business by helping to ensure objectivity that can be difficult when family members work together.

Termination

Even with a solid prevention strategy there might still come a time when a family member needs to be fired and while this won’t ever be easy, for the business or the family, it can be eased.

You might first consider damage limitation and your immediate thought will likely be about how you to keep the relationship intact but as the business leader it’s also important to consider the wider perception and impact of the termination to the company. Any major firing can disrupt a business and create fear among employees but firing a family member will do so ten-fold. That said, keeping a family member on when they’re not performing is also damaging by either making non-family employees feel that there is an unfair difference in expected performance or by lowering performance across the staff who follow by example. 

It’s also crucial to make it clear that the business and family are separate and that the reasons for which the person might be terminated do not affect their worthiness as a member of the family. In the business, the needs of the business must come first and firing the person from the business does not mean firing them from the family. Equally, avoid talking about the situation with other family members who are uninvolved in the management of the business. This will only cause people to take sides and increase tension around the subject.

The board of directors can be a useful tool to provide advice and support, particularly if there are non-family members on the board as it helps to ensure impartiality. However, the board should not be used as an excuse or proxy to carry out the termination. The final decision rests with the CEO and they should be the one to deliver the news, whether they’re a family member or not. 

However, before serving a termination notice it’s a good idea to offer the person an honourable way out by suggesting resignation. If it has reached the point where termination is necessary one would hope that all parties know the reasons and it is not a surprise. The conversation about resignation would include an honest conversation about performance and also reassurance that it doesn’t affect their status in the family. Having an impartial third person in the room, be that a board member or outside consultant, can also help to temper emotions and keep the conversation on track.

If the resignation offer is not accepted and a termination notice must be delivered, be as specific as possible and utilise evidence such as performance reviews. With clear, empirical reasons the person may recognise the reason to leave and do so without the family relationship being damaged.

In summary, the process of firing a family member will never be damage-free or emotion-free for any of the people involved or the business but being open and honest will go a long way to limiting the damage. 

Fiducia Partners insights - Bringing A Non-Family CEO Into The Family Business

Bringing A Non-Family CEO Into The Family Business

October 18th, 2019 Posted by Business 0 thoughts on “Bringing A Non-Family CEO Into The Family Business”

There are times in the life of a multigenerational family business when it might be suitable to appoint a non-family member to lead it. There could be many reasons for this with the most common being that when a succession is due to take place there are no family members qualified or willing to take up the role. In this case some families may hire non-family CEOs to serve as a “bridge” while the rising generation acquires the necessary experience or knowledge, whereas other families may choose to fully transition into the role of owner-investors, ceding ongoing management to non-family professionals.

Needing to source a CEO from outside the family shouldn’t be seen as a failure, rather an opportunity. It’s a chance for fresh eyes to consider new areas of business or growth opportunities that family members, having learnt from other family members, may not see. They can bring expertise not available in the family and depending on what the family wants for the business they can choose a CEO with the right skills and experience from a far wider pool than if only looking within the family. 

One significant advantage of bringing in a non-family CEO is that it also opens up an opportunity for better communication. The CEO can act as an effective liaison between generations to ensure mutual understanding. Where there are several branches of the family with an interest in the business it may also widen options for the next successor. Even inside the same family there can be factions, with each faction interested in their branch succeeding in the family business. A non-family CEO is able to impartially appraise who in the family might be suited to certain roles without bias, unconscious or otherwise.  

However, the benefits of appointing a non-family CEO can only be achieved if family members respect the authority of the CEO, and don’t undermine him or her. This is easier said than done, as I have witnessed several times. Bringing in a non-family CEO is a big transition for most family businesses and is therefore challenging. 

As well as being willing to accept the change the family should also look to mend fractured relationships and resolve tensions before appointing the new CEO. While a non-family CEO can perform a certain amount of mediation it is not their main job and spending all their time managing difficult family relationships will make it much too difficult to perform their role as CEO effectively. 

Once the family is prepared for the introduction of the non-family CEO, the CEO must also play their part to make a success of the situation. I’ve worked with many wealthy families and their businesses over my working life and where I’ve seen successful non-family CEOs they all seem to establish these key principles early on:

First, that they are separate from family affairs and family politics. Maintaining impartiality and not getting involved in family matters ensures that both family members and other staff trust the non-family CEO and respect their authority.  

Second, that they establish clear rules that focus on equality. In many family businesses there aren’t the formal structures and rules that may exist in a non-family business. While this can work for smaller businesses, where a non-family CEO is appointed it is important to implement policies that clarify the rules for everyone to follow, whatever their status or seniority. This is key to maintaining impartiality and independence throughout the CEOs tenure. 

Such an approach is likely to move the business towards a structure much more formal than the family might be used to. However, I argue that this should be a welcome change for most family businesses. It not only opens up opportunities for growth but also makes working in the business more attractive to other, non-family talent who might not usually consider a family business where their growth opportunities are traditionally limited. 

Fiducia Partners Insights - Family Office Trends

Family Office Trends: Outsourcing, Cash and Sustainability

October 4th, 2019 Posted by Family Wealth, Planning 0 thoughts on “Family Office Trends: Outsourcing, Cash and Sustainability”

Family Offices are known to be very discreet and don’t often share much about their inner workings in the public sphere. However there are a few reports throughout the year that reveal what’s happening in the family office space and the rising and falling trends. One such report is the UBS Global Family Office Report in partnership with Campden Wealth. For this year’s report, released last week, Campden Research surveyed the executives of 360 family offices across the world, with an average of $917 million assets under management. 

The report revealed some useful information about how investment portfolios have been performing over the last 12 months and what family offices are focusing on and preparing for. This week I’ve pulled together some of the key trends the report highlights and those I found most interesting. 

Assets to Cash

One of the key findings of this year’s report was that it revealed more than half of respondents believe that a market downturn will occur by 2020. As a result, 45% of family offices are preparing by reviewing their investment strategies and taking measures to minimise potential losses. 

42% also said that in order to be in a position to capitalise on opportunistic investments they are increasing their cash reserves. Increasing reserves of cash and gold is a common strategy that many investors take in times of economic downturn but it should be noted that those with a long term investment view may still be able to ride out short and medium term volatility. Families with large cash balances also need to be aware that some banks are planning to charge negative interest rates. For example, UBS Switzerland will from November charge 0.75% a year on individual cash balances above CHF 2m (£1.6m). Credit Suisse is expected to follow suit.  

Sustainable Investing

The report also indicated that sustainable and impact investing is no longer seen as a ‘side project’ or something only focused on by the next generation of principles. It’s becoming a priority. In fact 33% of family offices currently dedicate between 10%-49% of their portfolios to sustainable investments. This trend is expected to keep growing with 85% of all sustainable investments meeting or exceeding investors’ expectations in the past year.

Remote Working

While globalisation and technology have made remote working possible for many years now, this year seems to be the year that remote working has really been embraced. One family office principle quoted in the report said that he and his staff only went in to the physical office one or two days a week with the rest spent working remotely. Anecdotally, I’ve also noticed a shift in colleagues in the family office and wealth sphere spending less time in a physical office, beyond the usual Friday. 

Professional Services

A final revelation from the report I thought worth including, that family offices are spending more on professional services including support for succession planning, new business areas, security, governance and asset management. Family Offices’ total average spend on services in 2019 was $11.8 million and while this is not necessarily radical, it is interesting to know that not everything is being done in-house. I posit that there are two main reasons that family offices outsource. First, on the basis that it reduces costs and allows greater control. Second, that outsourcing may be done out of necessity. A World Economic Forum report revealed that nearly one-third of family offices lack in-house expertise. Particularly for small family offices that run with only a handful of staff, finding talent with the multiple and varied skills necessary to carry out all the functions of a family office is becoming increasingly difficult. 

Fiducia Partners Insights - Fundamental Principles for Investing Success

Fundamental Principles for Investing Success

September 13th, 2019 Posted by Investment, Planning 0 thoughts on “Fundamental Principles for Investing Success”

No investment is without risk but as seasoned investors will tell you there are a few principles you can follow for making better investment decisions. The principles I have listed below all try to help you to focus on that which is in your control rather than taking chances on that which isn’t. 

1.Define your investment targets

Investing is not an end in itself. Whether you’re looking to meet a specific need or investing for future generations the target will define the strategy. However when defining targets I would never recommend investing for the ‘short’ term. Short term usually means high risk. When buying an investment at a favourable price it may take time for the market to recognise its true value and for you to make a healthy return. 

As Warren Buffet says, “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”

2.Find your risk tolerance

No one enjoys losing money but some can tolerate the risk of losing money more than others. I’ve spent a lifetime investing and working with investors and most set their expectations on returns too high but are not prepared to take the corresponding risks. Finding your risk tolerance should include an assessment of what you could withstand to lose, should your investments not pan out, and still remain in a stable financial position. If you’re not prepared to risk even that then you’re on the low risk, low reward path. 

3.Don’t be blinded by greed

No one likes to think of themselves as greedy yet it often blinds people from seeing reason. Many investors have regretted investments that supposedly offer high and safe returns but what they fail to see are the hidden costs and risks involved. It goes back to the saying, if something seems too good to be true, it probably is.

4.Diversification is vital

Diversifying so you’re not over-exposed to any given asset type, country, sector or stock is critical and a small amount of diversification provides enormous benefits. Five investments are better than two, ten are better than five but this is only true until you get to the point where the costs for adding additional investments become greater than the benefits. 

5.Think and act intelligently

Many investors are successful in building a sound investment portfolio but fall when they fail to stick with it when the markets falter. Successful investors don’t allow themselves to be swayed by the latest news and short-term variables. Patience and stamina are required. 

6.Review regularly

As asset values rise and fall your portfolio can shift away from your risk profile and objectives. You may need to adjust your original weighting and regular reviews also give you a chance to consider your own circumstances.

7.Remember what your money is there for

While there’s a lot to be gained from a good investment strategy and careful money management, remember, not every penny must be invested for profit. Money is also there to be spent on what makes you happy, on what makes other happy. That too is valuable. 

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For more of my insights into the world of family wealth visit the Fiducia Partners website

Fiducia Partners Insights - What Happens After Selling The Family Business

What Comes After Selling The Family Business?

August 30th, 2019 Posted by Business, Family Wealth, Planning 0 thoughts on “What Comes After Selling The Family Business?”

Succession planning can be one of the most challenging aspects of owning and operating a family business and sometimes the right succession plan is to sell. This might be the case for multiple reasons including destructive family dynamics, conflicts in vision, lack of interest by the next generation, lack of passion by the current generation but also reasons that any business might face such as concern about increased regulation or exposure to potential liabilities. 

Whatever the reason, after the decision is made to sell and the deal is done, both the family and individuals within it can struggle with the loss. Having worked with many family businesses over my life it is very clear that business and personal aspects are deeply interwoven in family-owned businesses. The business is often the result of generations of a family’s hard work and devotion and may have created expectations about continuity, tradition, unity, dividends and family employment.

On the positive side if the business is sold for a substantial sum it can provide financial freedom for the family or individuals within it to accomplish other goals. Some families may choose to create a family office and channel their shared goals and vision into its management and investment decisions. Other families might choose to start a new family venture, without the problems that led to the sale of the previous business. Others may choose to manage their money individually. 

Whether or not family members choose to create a family office or manage their money individually, a large amount of liquidity presents its own issues including how to preserve it. This would usually involve making decisions about setting up trusts, diversifying assets across industries and markets and how philanthropic they want to be. 

But even with a plan for what to do after the sale of the business, it is very likely that members of the family may struggle with feeling like they’ve lost a part of their identity. Particularly if the business was founded several generations ago, it can be hard not to feel a sense of failure and guilt of letting down the family or failing to fulfill the legacy passed to them. Without the company, the family’s perception of itself and its purpose can change. A company often holds families together by giving members a shared identity and closeness established by previous generations. It’s an unfortunate reality that selling the business that glues the family together may mean some members of the family slip away but it also provides an opportunity to create opportunities to connect with one another around social events rather than in the boardroom. 

Of course for some families, the sale of the family business is a welcome opportunity for individuals to choose their own paths. Whatever comes after the sale of the business, one thing that is certain is that having a solid plan for how to work, live and invest following the sale of the business is key. The family’s success may no longer be tied to having its name on the wall but its success may continue in other ways with family members following their passions or working together to preserve a financial legacy for the next generation.  

If you’re considering your options for business succession and would benefit from outside help please do get in touch with me via Michael@fiduciapartners.com. Among our services as a multi family office Fiducia Partners provides discreet introductions and expert support for strategic challenges.

If you enjoyed this article, please let me know by clicking on the thumbs up icon above. I really appreciate receiving the feedback.

For more of my insights into the world of investments and family wealth visit the Fiducia Partners website

Fiducia Partners Insights - How the 0.01% travel

How The 0.01% Travel

August 15th, 2019 Posted by Family Wealth 0 thoughts on “How The 0.01% Travel”

It’s August, which means London is empty as people fly off to enjoy sunshine, sea and relaxation. And for ultra-ultra-wealthy families this doesn’t involve a delayed flight and disappointing hotel, it means skipping the security queue and jumping on a private jet to arrive at their destination unflustered and well rested. It might also mean staying on a superyacht and enjoying the waters of Saint-Tropez or Santorini in complete privacy.

It’s reported that the mean average wealth of a private jet owner is around $1.5 billion, so those in a position to own one aren’t even the 1%, or 0.1%, they’re the 0.01%. The costs associated with owning a private jet only begin with the purchase price which can be anywhere between $3 million to $90 million. Depending on the size of the aircraft the annual running costs from the pilot, ground rent, fuel, air stewards, and insurance can be anywhere between $700,000 to $4 million. Then there’s the fact that according to The Jet Business founder, Steve Varsano, (you may have seen their magnificent showroom on Hyde Park corner) most jet owners change their aircraft every four to five years.

So while the idea of flying in unhassled luxury is a very nice one, with such enormous costs involved what makes owning a private jet worth it, even for a billionaire? The answer, I think, is that while it’s lovely to be able to have a private jet on hand to take you to your holiday, the reality is that most private jet owners use it to save precious time on business travel. Not only does it enable you to skip the security queues but also gives you the flexibility to fly at a moment’s notice and take off and land in an airfield close to home and the destination. It also means meetings can be conducted during travel, in total privacy and security. That said, it’s still not a purchase most billionaires choose to make with chartering private jets and memberships to clubs being big business.  

So, if owning a private plane is costly but does have its practical uses, what about owning a superyacht? I think it’s no exaggeration to say that of all the things a billionaire’s money can buy, none is more decadent than a superyacht, usually defined as being 80ft or longer. Britons actually own the second largest share of the world’s superyachts and unlike property or rare art, superyacht values depreciate so they’re certainly not a smart investment decision. For those that can afford one, they represent the ultimate in luxury, privacy and status. Head to Cannes, Positano, St Barts or Capri and you’ll probably see a superyacht, or two, out in the bay.

Eight out of the ten most expensive luxury acquisitions of all time fall in the superyacht category, led by the $600 million 180-meter Azzam, owned by Khalifa bin Zayed Al Nahyan, President of the UAE. The Azzam has 70 crew members and even its own missile defence system but is so large it can only dock at certain locations. I once heard someone say that owning a superyacht is like running a business except the balance sheet shows you in the red. The enormous costs involved include year-round employees, insurance, maintenance, fuel and dockage which in high season at the most sought after marinas can easily cost over £3,000 a night. When in use, stewards need to be hired with a ratio of one guest to one steward considered optimal. The rule of thumb is that the annual operating and maintenance costs will run at 10-15% of the boat’s purchase price. 

But for those that have the means to take on all these costs, the joy of owning a superyacht lies in the incredibly private and exclusive experience it affords, highly valued by the ultra-wealthy. Increasingly, they’re also being used to explore lesser travelled exotic places where luxury accommodation is lacking, unless you bring it with you. And the other reason the ultra-wealthy might buy a superyacht? Because they can. 

If you enjoyed this article, please let me know by leaving some much appreciated feedback.

Fiducia Partners Insights - Investing For Your Great-Grandchildren

Investing For Your Great-Grandchildren

August 2nd, 2019 Posted by Family Wealth, Investment 0 thoughts on “Investing For Your Great-Grandchildren”

For many ultra-wealthy families a successful investment is one that lasts decades and benefits generations. Making investments that will still generate income for your great-grandchildren is not easy but it is the way that many family offices need to think. Such investments don’t tend to be exciting and high-risk but are wellconsidered and require patience.

I see a lot in the news about how so-called millennials are shortsighted, wanting instant gratification and not looking beyond short-term goals. In other words, they don’t have patience. But in some ultra-wealthy families, millenials will now be inheriting investments and investment strategies that have spanned generations. They will become stewards of wealth that may have been preserved for 5, 6, or 7 generations. With this kind of wealth and legacy there is no short-term thinking and holding investments for 100 years or more and creating strategies to match is not uncommon. 

Creating an investment strategy that covers the next 100 years forces you think about how you might weather all the difficulties that could hit the market, be it a war, depression, economic crash, or climate change. Take family owned wine and champagne houses as examples. Many have been owned for generations and still nurture the soil in the vineyards that their great great grandparents bought. The Codorníu family has been producing wine for four hundred and fifty years and has had vineyards on their property since 1551. While the company leaders in each generation will have taken the business in a slightly different direction the overall aim to be able to pass the company to the next generation hasn’t changed. They may not have a detailed investment strategy that looks beyond 20 years but decisions about planting grape vines takes long term vision, as they can produce for hundreds of years. At the family owned Louis Roederer champagne house, they began preparing for climate change in 1999 by developing techniques to train the vine roots to push further down into the soil and started farming organically and biodynamically to adapt to the more extreme weather conditions that we’re seeing and will likely only intensify. Without this long-term view the increasingly dry summers and flash downpours could have ruined their much-prized vines. 

In other industries too you often see influential families leading innovation in the knowledge that it may benefit them in the long term. The Swedish Wallenberg family has recently invested around €300 million in AI programs in Sweden because it wants the country to catch up in the global AI arms race which is not only necessary for the country as a whole but also the companies that they control. Two of their companies, Ericsson and Saab use a lot of advanced software and antenna technology so if Sweden’s infrastructure falls behind in those areas so too does their company. The large investment they have made doesn’t directly benefit them and their company in the short term but will do in the long term, which is the time frame in which they are thinking. 

Outside of ultra-wealthy families very long-term investments are common in large institutions such as churches, universities and schools. Oxford and Cambridge university colleges collectively own 126,000 acres and have held on to some of their property assets for hundreds of years or plan to. Oxford University Queen’s College owns an Isle of Wight farm bought from Henry VIII and Trinity College owns a 999-year lease on the O2 arena indicating their long-term ambitions for the asset. 

Like Oxford and Cambridge, family offices also tend to favour growth assets like property, which often make up a large portion of their portfolios as they have historically performed the strongest over many decades. Such assets may be subject to market fluctuations in the short-term but in the long-term the trend has been up.

These are just a few of the ways ultra-wealthy families may use their investments to benefit their great grandchildren and beyond. It is sad however that I have also seen some families fail to think long term and preserve their wealth with one of the main reasons for failure due to a lack of preparedness on the younger generation’s part. It’s my opinion that families must fully prepare the next generation for the wealth transfer as if training them for any skilled profession. Managing and growing wealth is not a project that can be done on the weekends, it takes dedication, skill and of course patience. 

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