In a post-pandemic world, the last quarter will be remembered for its very simple sense of normality. Networking events and conferences made a comeback, children returned to full-time education and travel bans were broadly lifted with the UK to US travel ban departing in just under five weeks’ time. There has been a global sense of relief, a move to forward-thinking and a focus on collaboratively making an impact that lasts beyond tomorrow.
Can looking to the future secure the best returns today? (Photo by Universal/Getty Images)
While the world rejoices its simple ability to just be, Family Offices have shifted from reacting to the pandemic to proactively planning for tomorrow and they have hosted their highest performing quarter since the pandemic began. We have noticed a surge in Private Equity activity, a heightened level of risk appetite and a move to co-investing to both spread resources and secure returns.
Family Offices have also taught us a lot. From the virtue of patience and when to take risks to the importance of giving and how doing good can be good for business, there is a lot to be learned from Family Offices, particularly over the last quarter and here I outline how you can learn from the key three trends from the last three months.
1. The Rise Of The Social Entrepreneur.
2020 put philanthropy on the Family Office map. The need for charity was magnified and Family Offices alongside their UHNW Principals ramped up efforts to give whatever they could to whoever they could.
209 billionaires donated a total of $7.2BN in the first three months alone as many more invested in emerging biotechnology companies, make-shift hospitals and digital technology all in a bid to support new discoveries, help victims of the virus and support a segregated economy. While most of 2020 was spent recovering and rectifying, 2021 allowed time to pause and most importantly plan.
We noticed a shift, particularly in the last quarter, from reactive to proactive investing with Family Office leaders thinking further into the future and considering what today’s investments could mean for tomorrow rather than what it might have achieved in the past.
I spoke to a Family Office Leader recently who in 2003 decided to plant a flag in the year 2050 and work backwards. With 29 years left to go, he shared his forecasts for the future and how they impact his everyday investment decisions, particularly within the realm of Private Equity.
The first find was demographics, looking at migration and population trends. Through doing so, he and his team discovered that the population would plateau at 11.5BN and that by 2050, we will, as a global population, experience a shortage of young people. This suggests that the burden on workers will be monumental and diseases such as Dementia could have a tremendously negative impact on the aging population leaving them partially incapacitated. Focusing today on genomics and sequencing, the Family Office Leader invests into health technology and science to find preventative measures for the illnesses of the future that will consequentially impact the economy. He repeats the process with the likes of technology, climate and education – focusing on educating tomorrow’s aging and controlling generation.
For him, long-term, endowment like thinking is the key to success. In his words: “Doing impact on the side of your investment portfolio is like doing bad things all week and going to church on Sundays.”
2. Return with Reward.
While leaders look to make long-lasting and impactful change, they also want to benefit from it and if we have learned anything from the last quarter it is that the two are far from being mutually exclusive.
In November 2020, Agreus broke the news that Andreas and Thomas Strüngmann and their Single Family Office; Athos Service GmbH became one of few Single Family Offices globally to have a single holding in their portfolio valued at over $12BN after their controlling stake in BioNTech contributed to the creation of the world’s first coronavirus vaccine.
Just weeks ago, economists announced that the partnership between the Family Office and the early-stage science venture has boosted German GDP by 0.5% alone with predictions of a national growth of 3.7% by the end of the year.
While a guarantee of $12BN does not come attached with every impact investment nor might it change global economies, 73% of tomorrow’s leaders said they care about making a social impact when investing and equally wish to make a return while making rewarding change. With two thirds promising to diversify the Family Office portfolio as soon as they can, it’s likely the push towards Impact will continue much into 2022 but it isn’t just about making an investment, it’s about measuring it along the way.
This quarter has seen a move towards measuring Impact Investments. The Value of Global Assets applying Environment, Social and Governance data to drive investment decisions had almost doubled over the four years leading up to 2020 and tripled from 2012 to now value $40.5TRN. While this number will undoubtedly increase into the rest of 2021 how do Family Office Leaders measure the performance of their impact?
Measuring impact has been a key talking point this quarter with some creating a benchmark for good by using a combination of quantitative and qualitative data and others relying on financial-technology designed for the Family Office Community. This will certainly be a space we’ll be watching closely in the next quarter.
3. Information sharing.
Family Offices have slowly realised the art of learning from other Family Offices to achieve best practice, set goals and overcome the loneliness that surrounds leaders within the space but in the last quarter we have seen this amplified into the common art of co-investments.
While sharing ideas and methodology has become the norm among Family Office friends, co-investment has become increasingly popular and we have worked with several Family Offices over the last quarter as they diversify from investing purely through funds to co-investing with other Family Offices.
As part of a survey into investment compensation we asked Family Offices how they make investments and 78% reported that they invest both through funds and directly, many of which noted that this was indeed co-investments with other Family Offices.
This is very much a European sentiment as American Family Offices have been open to collaboration from the very beginning. It is often European Family Offices however who tend to be more cautious and considered but this is certainly changing, especially with the next generation and with great returns too.
Recent data from Asset Management Firm Capital Dynamics revealed that Private Equity Co-Investors have benefitted the most post-pandemic. The research unveiled that the performance of co-investments, where non-private equity groups invest alongside funds in a business, have been considerably higher following the crisis period than buyout deals at a return of 24.2% vs 18.4%.
Some may argue that the last quarter has given us the recipe for Family Office success. Long-term planning, impact that returns and collaboration to both fight loneliness and achieve greatness. We expect to see more forecasting, more sophisticated impact investment strategies and more benchmarks to measure the success of their own Family Offices and those they select to work alongside.
What do you expect to see in the Family Office space this quarter and what lessons have you learned from the last three months?
