This month’s comment comes from Matthew Braithwaite. Matthew Braithwaite is a Partner at Wedlake Bell. He advises UK and international individuals, families, trustees and beneficiaries of trusts and family offices on UK tax, estate planning and succession issues. Matt is also a member of STEP and Co-Chair of their Business Families Special Interest Group.

Until recently the well-trodden path taken by the majority of family offices has been to invest in stable equity stocks with dependable dividend yields which have provided a reliable way of preserving family wealth. However, in the current financial climate, with record low interest rates and the impact of the Covid-19 pandemic, family offices have needed to reassess their investments in the quest for yield.

Attitudes to investments and risk are changing

The search for yield is not the only reason family offices are increasingly turning to the alternative investment world. As wealth transitions from one generation to the next, attitudes to investments and associated risk also change.

The next gen are more receptive to the idea of risk-taking, being less wedded to the wealth which their forebearers have created or accumulated, and more driven with the non-financial value attributed to sustainable investment.

So where might opportunities lie? Family offices are increasingly turning to the alternative investment space as another way of generating yield.

Investing in private equity deals (including venture capital) are but one example of this. As well as going it alone with their own private equity investments, family offices are making co-investment opportunities with other families or institutions. A recent article published in The Financial Times reported that family offices are tapping into the SPACs boom.

Confidence is key

Family offices have historically been more discreet as investors, to preserve confidentiality, maintain a low profile, and with an eye on strategic asset allocation, which often counters the desire to invest into the alternative investment space in any significant way.

So how do family offices acquire the confidence needed to invest in a more meaningful way? This is likely to come from deal flow. The more deals they do, the more confident they will become — but this is not without its own inherent risks. Sound financial advice from the outset and robust due diligence is key. To even get to this stage though requires buy from the family, often across generations.

A family charter or vision statement is a good place to record a family’s shared values and vision (including attitudes to investing and risk) and gives the family office the required framework within which to operate and deploy capital.

Family offices are more nimble investors

Once this hurdle is overcome, family offices can often bring a high degree of ‘value add’ to the table, compared to their institutional counterparts. Family offices are often more nimble investors compared to their institutional counterparts but are often more cautious, relying on personal relationships to support their decision to deploy capital into a particular investment vehicle.

As more deals are done, the greater the financial and reputational risk for family offices. Preserving reputation will become increasingly important in the context of co-investing, with premiums being placed on firms with strong ESG processes, to mitigate the risk attached to any deal which a family office gets involved with, in addition to undertaking financial due diligence.

About Matthew Braithwaite

Matthew Braithwaite is a Partner at Wedlake Bell, a leading law firm. He advises UK and international individuals, families, trustees and beneficiaries of trusts and family offices on UK tax, estate planning and succession issues. He acts for high net worth individuals and families including business owners and entrepreneurs. Matt is also a member of STEP and Co-Chair of their Business Families Special Interest Group.

About The Lede

This article was originally published in The Lede, Transmission Private’s monthly newsletter that tracks the future of reputation management. Featuring interviews with leading private client advisers from the worlds of law, finance, and accountancy, sign up today to receive the newsletter in your inbox every month.