A trusted adviser to HNW entrepreneurs, Rosalyn Breedy was until recently a partner at Simons Muirhead Burton and now provides advice through her own firm, Breedy Henderson. She has more than 30 years of experience in private practice and has, through her career, worked at Wedlake Bell, Forsters, Withers, Sandaire, and many other leading firms.
As the Great Wealth Transfer starts to gain momentum, we are seeing a number of family offices pursue an investment strategy heavily oriented to early stage ventures, with a reallocation of capital away from the traditional safe investments towards life sciences, technology and other innovation sectors. This is particularly true in the UK which is home to much innovation and has a fiscal environment that is supportive of it.
As £5.5 trillion is expected to pass between generations in the UK between 2019 and 2055, (according to the King’s Court Trust, 2019), we are also seeing a different set of values among the inheritors of family office structures. Charged with preserving wealth and maintaining family lifestyles in the face of high inflation, family offices face an unprecedented combination of risk factors.
While board members are looking for simplicity and effective governance in their family office structures, with a definite preference for onshore domiciles, the next generation of beneficiaries is interested in venture capital, environmental and social outputs, and governance concerns.
Meeting change head-on
It is easy to continue in the same vein, without questioning whether yesterday’s strategy will serve you well in the future. Family offices need to look beyond continuous incremental improvements of existing processes, and short term viewpoints.
The changing environment means that the time has come for each family office to formally review its goals and objectives, and whether its current strategy is fit to ensure its wealth will not be diminished in the hunt for higher returns.
A roadmap to VC success, published by Campden Wealth in October 2021, found that family offices had increased their investments in venture funds (to an average of 10, up from 8) and direct venture investments (to an average of 17, up from 10) since 2020. Families said they expected to make on average 18 new investments – of 6 funds and 12 direct deals – within the next 24 months.
Furthermore, the report highlighted that: “Investments leaned towards growth investments, representing 48% of the venture portfolio, followed by 28% in pre-seed and seed investments and 24% in Series A investments.”
Challenges and capabilities
This move towards early stage ventures has a number of practical implications for each family office, not least in terms of risk, transaction structuring, and ongoing governance and compliance.
The proposed amount of deal activity is astonishing, as 18 deals in two years is nearly one deal a month. This would require an in-house team able to find, select, negotiate and complete all these venture capital deals. This requires a skillset which the in-house team may not have if their focus has been on wealth preservation, and investing in public equities, bonds and derivatives.
If in-house teams are being incentivised in line with venture capital remuneration, then this also requires a different form of governance to ensure that interests remain aligned with the family.
For example, in-house team members often take board seats in investee companies on behalf of the family which will mean that deal team members need to comply with their duties as a director – with their duties to the family coming second. This means that family offices must ensure that their interests are properly protected by provisions in the articles of the investee company. Team remuneration should also reflect overall performance and risk management.
Stronger governance will surely be needed if next-gen UK family offices are going to increase their appetite for risk in pursuit of reward.
About Rosalyn Breedy
Rosalyn Breedy was until recently a partner at Simons Muirhead Burton and now provides advice through her own firm, Breedy Henderson. She has more than 30 years of experience in private practice and has, through her career, worked at Wedlake Bell, Forsters, Withers, Sandaire, and many other leading firms. Image: David Jensen
About The Lede
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