Gareth Davies is a Founding Partner at Mana Ventures where he works with next generation family members and UHNW clients within the direct investment market.
Why are direct investments particularly appealing to next generation family members?
Gareth: Next gen family members are often enticed to early stage (venture) or later stage (private equity) investing by their peers. Tales of Silicon Valley start-ups, unicorn IPOs and 100x returns capture interest, which is further fuelled by numerous intermediaries pushing the latest ‘exclusive’ deal.
But entry into the market is also driven by purpose. Privileged next gens often struggle to find their purpose under the family shadow. Direct investment can seem like a good opportunity to build their own legacy based on passions, be that impact investing, blockchain technology or alternatives.
Direct investing can also provide a route to social validation. No-one talks about the latest distressed debt fund their wealth manager has invested in, but they can talk about an incredible impact start-up they’ve backed that IPOs next year. It gives a sense of purpose and achievement.
What challenges does this create for advisors and senior family members?
Gareth: The main challenge is that the reality of direct investing is very different from the perception: the market is high risk, long term, illiquid, riddled with charlatans, poor deal flow and big losses.
The challenge for advisors, wealth managers and trustees is helping the next gen navigate that market and avoid bad decisions, without upsetting them or curbing enthusiasm. Advisors to UHNW clients and senior family members alike want to maintain positive relationships and encourage a sense of purpose within the next generation, which often translates into not wanting to say ‘no’ to them.
At the same time private bankers want to avoid watching assets under management diminish by loss-making direct investments, and trustees want to avoid upsetting beneficiaries or signing off direct investments with limited scrutiny.
How can families and their advisors find a solution that satisfies everyone?
Gareth: For senior family members and incumbent advisors, the priority is to create a structure to mitigate the risks and establish clear investment processes, without being overbearing. Guidance is critical here. The quiet wisdom that resides at the top of a successful family or with seasoned wealth advisors is undeniable, but an independent third party can help transfer this knowledge, applying the same discipline to direct investing.
My job is effectively to work alongside senior family members and incumbent advisors to bring order and focus to the next gen’s ideas and enthusiasm. Establishing a close working relationship with them, I work discreetly to understand investment goals, interests and level of experience. We then devise a plan to de-risk entry into and continued participation in the direct investment markets and become a protective barrier for the client.
How does the protective barrier work?
Gareth: We pride ourselves on being trusted and loyal partners to some of the world’s most prestigious and prominent entrepreneurs, high-net-worth individuals and private families. We are hugely protective of them, their assets and their reputation, and we work hard to establish levels of trust and integrity that are measured in generations.
Within direct investing, this often involves handling aggressive sell side intermediaries. As an example, clients may be approached by intermediaries, colleagues or friends for an investment that must be completed imminently. This creates a high stress situation for all. The next gen feels peer pressure to go along with the deal, putting advisors under pressure to complete almost blind.
We act as a barrier so that clients can maintain their social relationships and make us the fall guy who has found an issue with the deal. It’s much easier for us to take the blame and the client to save face. We become the third party that trustees can turn to, to help deal with these situations amicably and create measured outcomes for all.
We also act as a barrier to protect the anonymity of celebrity clients who wish to become active in the market. Those who don’t have extensive financial experience, whether next gen or not, benefit from the support of seasoned, trusted partners so that they can build their reputation as credible investors.
About Gareth Davies
Gareth Davies is Founding Partner at Mana Ventures, working with next generation family members and UHNW clients within the direct investment market.
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.
