This month's interview is with Dr. Michael J. Oliver, who co-founded Global Partnership Family Offices (GPFO) in 2009. He has spent over 30 years teaching at various universities in the UK, US and France and has combined this with a practical application of economics to offer executive education, workshops and a broad range of consultancy for family offices and high-profile institutions. He is also a Senior Lecturer in Finance at the Open University and has published extensively on monetary history, exchange rate regimes and macroeconomic policy.

If you were writing the history of family offices in 20 years’ time, what would you call the chapter on Covid-19?

Michael: “The Great Divergence”. Few crises have impacted day-to-day activities as much as Covid-19. Each family and family office has tried to adapt in their own ways, some successfully. Health and longevity have been viscerally front of mind. Governance and administration structures have been tested; many have failed. From an asset allocation perspective: 

• For families and family offices with a high concentration of exposure it has been boom or bust
• Those that are well or fully diversified have fared in most cases well due to generally well performing equity and equity related markets
• Some ‘safe harbours’ (e.g. property) have been exposed as not so safe. This will divide mindsets and cultures, emboldening risk takers and striking fear into many conservative minds
• This period’s greatest impact has been operational. The next period will likely be the most treacherous for markets and investment teams

Looking to 2022 and beyond, to what extent are economic conditions pivoting the mandate for family offices from wealth preservation towards wealth creation?

Michael: In January 2021 we surveyed the GPFO community and asked ‘What will be the most critical challenge for family offices in 2021?’ Just under half of respondents considered low yields and rising inflation the most critical issue. For the most part they have been wrong… this year. From continued conversations with individuals and groups, this sentiment has not changed. The phrase ‘fully invested bear’ comes to mind.

The ramifications for family offices in particular are wide reaching: with such a breadth of scope on the investment mandate, what do you do? It boils down even to the simplest questions, as exemplified at a recent GPFO peer-to-peer roundtable for senior executives in single family offices, where one asked what others were doing with cash balances.

The old equity/bond portfolio is long dead. Fixed income hasn’t been attractive in its historical sense for years. ‘Alternatives’ have become an increasingly significant proportion of family office portfolios. A recent Goldman Sachs survey (‘Widening the Aperture’) suggests alternatives to be the largest piece of the pie chart at ~45% now, though the debate over what are ‘real alternative investments’ is growing, something we will be examining in more depth next year.

The change of mandate and pivot from wealth preservation to wealth creation is happening. We have seen that with growing allocations to higher target return asset classes, like private equity and VC. That being said the devil is often in the nuance… from a family office perspective, are positive inflation-adjusted returns wealth creation?

What challenges does this pose for families and their advisors, and how can they mitigate them?

Michael: Challenge 1 is building in-house capability – the market is fierce for talent with investment and manager selection experience in high expected return asset classes. Rising minimum investment criteria from top tier institutions makes it troublesome to ‘dip a toe’ with new managers to build trust. Outsourced expertise and advisors have a crucial role to play here, allowing appropriate due diligence and high conviction for allocators.

Family offices are always evolving to adapt to changing external factors, like any organisation, but also to changing internal dynamics such as succession, which will often be unique to their individual organisation. Therefore, whilst today’s challenges may be new, the need to adapt is not. In fact the nature of family offices means that, in theory, they should be able to do this faster than other organisations and there are plenty of examples of where this has happened.

In practice, this is often not the case for myriad reasons, though a common root cause is that family offices can become insular, isolated and outdated. Talking to - and learning from - other family offices is one of the most important steps in mitigating this as it is very likely that there are others with similar experiences and outlooks.

We live in a society that glorifies the disruptive hare over the slow-and-steady tortoise. How is that cultural shift playing out among different generations of families?

Michael: It’s short sighted to say the glorification of disruptors and entrepreneurs has caused significant changes to the next generation of families in business and family offices. It is background music. Being born into a family of significant wealth, in most cases, means coming from a wildly successful ‘entrepreneur’. The proximity and awareness of this can vary, but the culture of the family often drives (willing) future generations to exceptional paths with a greater array of tools and support behind them.

Trusted advisors have for years supported in engaging next gens, aiding in education in the family business, or preparing willing and able family members for stewardship and roles in the family office. The current climate of ‘not fearing failure’ that has come from the disruptor boom has taken its time to permeate into the family business and family office world. Previously the fear of failure was magnified by the shadow of previous family members, with big boots to fill. Thankfully this mindset has been exiled to only the dustiest of attics, in many cases thanks to forward-thinking trusted advisors.

In what ways is reputation becoming a greater challenge in the age of social media and cancel culture, and is public disengagement still a viable strategy for managing it?

Michael: Since establishing GPFO in 2009, we have seen many single-family offices, previously never known to show their heads above the parapet, open up. There are differing reasons for this, but anecdotally many have done so to build a strong pipeline for deal flow, especially in private markets. Others have done so to engender change, whether through philanthropic means or business.

Even with the best intentions, public profiles are targets unless proactively managed. Any misstep with the backdrop of significant wealth is gold dust to certain parts of the media. Many realise the power of positive media and image, but few build or invest in the key components required to benefit from this.

About Dr Michael Oliver

Dr Michael Oliver is co-founder of Global Partnership Family Offices (GPFO) and also lectures in Finance at the Open University.

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.