IQ-EQ RoundTable: How Today’s Wealthy Families Manage their Money

VAR Capital’s V & CEO, Vikash Gupta participated in a Family Office Asset Allocation roundtable with eleven other senior experts hosted by IQ-EQ on the topic of how today’s wealthy families manage their money. 

The Search for Yield

Family offices, including VAR, are taking a more holistic view and reassessing needs during these unprecedented times.

Family offices have re-oriented their sole focus on income to an amalgamation of capital gains and income to meet their requirements, explained Vikash. They have opted to pause rather than chase yields. Till these times pass, they are keeping cash handy where possible, even though it fetches 0% return.

Bond yields aren’t possible without excessive risks, while the real estate market’s direction is uncertain especially in terms of commercial real estate and office buildings which delivered strong returns in usual times.

Risk Considerations

Reputational risk has become a key challenge for family offices. Traditionally, they have maintained a low-profile but an enhanced digital presence and shift towards institutional investing has led to a high-profile, which comes with greater reputational risk.

This becomes pivotal when assessing investment opportunities, particularly co-investments, where not just the opportunity but the investee firms’ reputation becomes important.

Waking up to negative press is a big concern for family offices. A potentially lucrative opportunity was dismissed by VAR because of a potential PR risk with an element of the deal. The younger generation, who flag such reputational concerns “tend to be more aware of the implications their actions have on the environment and society in general” as compared to the older generation who “were quite strong businesspeople and did hard bargains” believes Vikash.

There have been a tremendous number of distressed opportunities with the Covid-19 Pandemic. Family Offices are happy to look at these opportunities if a low-profile co-investing route is feasible with other firms so that they offer only capital and guidance, claims Vikash. The reputation becomes a greater concern with direct involvement in the distressed business, as in the case of Private equity which comes with a higher reputational risk. 

ESG & Impact Investing

Environmental, Social and Governance investments, driven by the younger generation, are being widely adopted by family offices. Rather than just returns, the impact of the investment on environment and society is becoming very important. Vikash shared the example of Ant Financial, the world’s highest-valued fintech group, which enables billions of small entrepreneurs to take their business online – a good ESG investment.

Investing Across Generations

The intergenerational wealth transfer presents a great opportunity, as the next generation “is obviously more conscientious” but at the same time poses significant risks making effective succession planning crucial, believes Vikash.

According to Vikash, families’ lack of attention to facilitating effective transmission of wealth to the younger generation often leads to wealth destruction. Transitioning the wealth early enough would allow the next generation to “dip their toes in water and get a taste of success and failure while it’s safe to do so”.

The next generation may invest in certain sectors, often the next big thing or nascent emerging opportunities in their impatience and desire to make quick money, which poses a great risk. Some often forget “their parents took 30-40 years to build the business” believes Vikash.

Vikash believes advisors should build relationships with the next gen long before they gain control, because “many next gens relieve their parent’s advisors because they want their own team”.

The parents’ generation built their businesses, and knew them well, so they didn’t need external professionals. But “for the inheriting generation, it’s crucial they get external support, professionalize their family office, form an independent board and put governance processes in place,” believes Vikash. The family will need to bear the costs this comes at.

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Winner of Investment Team of the year 2020/21 by STEP Private Client Awards
Runner up of Best Family Office in UK 2020 by Euromoney
Finalist: Family Office of the year - Magic Circle Awards 2020
Winner of Best Asset Manager and Family Office in UK 2018 by Euromoney