1. Newsroom
  2. The Covid-19 shock: has your family office proven to be resilient?
Menu
UBP in the press 24.07.2020

The Covid-19 shock: has your family office proven to be resilient?

The Covid-19 shock: has your family office proven to be resilient?

Arabian Business (12.07.2020) - As we slowly come to terms with the initial effects of the Covid-19 crisis, it is time to see what wealthy families and single-family offices in the Middle East can learn from it.


In particular, because the period following every crisis inevitably becomes the build-up to the next crisis, it is an opportunity to find ways of dealing with these situations more effectively in the future.

In times of crisis, businesses’ organisational and governance structures are put to the test, and the Covid-19 pandemic is proving to be an extraordinary example of that.

There is much less time for strategy and decision-making in a crisis, and this is also the case for single-family offices and other preferred forms of organised family wealth management.

Every wealthy family now needs to start looking at how it, and its team, have responded. In the Middle East, family businesses and private investments are often intertwined, managed by one team with no clear separation, and such a team might have become overloaded. Did the decision-making process function properly and could the decision-maker be reached in time? Did portfolio performance match the agreed risk profile, and was family office staff able to repatriate family members efficiently?

Crises are always unexpected, and so the analysis should not turn into a blame game, but instead concentrate on improving processes and governance methods wherever this is necessary and reasonably achievable. Part of the focus should be on decision-making, which is an important part of every family office’s operational set-up.

Some key elements are: does the family (office) have the knowledge and governance structure to take immediate measures and make important decisions quickly? Given that a lack of reliable and comprehensive information is a major problem in any crisis, is there a process for gathering key information? Before any decision is taken, several scenarios should be considered: is the organisation accustomed to scenario thinking?

Dysfunctional governance not only affects a family’s wealth but could also ruin family relationships. Now that the dust is starting to settle, a family should consider whether this is the right time to adjust its vision (or develop a new one), and if so, whether is this is the right time to involve younger generations in the process. Family heads are encouraged to reflect on their own role, and think about whether the outcome has been the right one.

The right strategic asset allocation

The right strategic asset allocation and effective risk management are essential for preserving wealth over generations. That said, not many family offices will have foreseen this pandemic. Despite having a very long-term investment horizon, the sudden market collapse may have had a severe impact on a family’s wealth.

Family offices in the Middle East that were already expecting and positioning for a market downturn in 2020, based on macro-economic analysis, might have been quite well prepared. Nevertheless, with the real economy coming to a standstill at the same time, these families might still have been badly affected in terms of their business activities and private equity investments. Family offices that had been more opportunistic and less strategic about their investments will have been caught by surprise, and the interweaving of financial investments with operational businesses will undoubtedly have made the situation much worse.

The Covid-19 pandemic has proven a lot of old investment theories right. Spreading risk by diversifying investments while taking into account a family’s operational businesses, as well as diversifying in terms of geographical and sector exposure, time horizon and investment types, is crucial in preserving family wealth.

In the months ahead, families and their family offices should not only focus on getting their businesses back on track, but also force themselves to review their business and investment philosophy and their strategic asset allocation.

This includes looking at how their investment team performed and which external advisors proved to be useful, checking whether asset managers kept to their mandate, and reassessing the family’s current risk profile and adjusting it if necessary.

Crises will always happen, and each one is different. Even if you happened to do well in this one, it is important to prepare carefully for the next crisis, whenever it may arrive.


Jan_van_Buren_150x150.jpg
Jan van Bueren
Global Head Family Office Advisory

Expertise

Impact investing - Contributing to a more sustainable future

What are the key features of impact investing?

Read more

Most read

UBP in the press 24.04.2020

Is your low-carbon portfolio destroying the planet?

Responsible Investor (22.04.2020) - An investor who focuses solely on low carbon emissions could end up investing in polluters, while excluding some of the most important providers of solutions to the climate emergency.

UBP in the press 28.04.2020

How to hedge when volatility itself becomes volatile

Professional Pensions (24.04.2020) - The fastest bear market in history ends one of the longest-ever bull markets

UBP in the press 21.08.2020

Does private education generate positive impact?

Environmental Finance (14.08) - There is a strong argument for saying that private education has no place in impact investing because education is a basic public good that should be freely accessible to all. 

Further reading

UBP in the press 12.10.2020

The private banker’s metamorphosis

Le Temps (12.10.2020) - Few have been forced by their environment to go through such a deep professional change as private bankers. While relationship-building and advising remains their core role, their job today does not have much in common with what it was before the 2008 slump.

UBP in the press 09.10.2020

FRNs: an attractive medium-term opportunity

Institutional Money (08.09.2020) - FRNs offer an attractive risk/reward profile at the effective lower bound

UBP in the press 29.09.2020

Adrian Kuenzi: «I Wanted This Rupture»

Finews (28.09.2020) - Adrian Kuenzi has taken his next career step at Union Bancaire Privée, he told finews.com in an interview. The bank will keep investing, because the best of cost-cutting program won't help it win new clients.