Strategies to achieve cross-generational success of family offices
A recent report from DBS Private Bank shed light on the primary objectives at the forefront of wealthy families’ agendas.
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According to the report, family offices put great importance on harmonising relationships across generations on a global scale, aligning values between family offices and business enterprises, venturing into new and daring investment strategies, and facilitating the personal ambitions and passions of family members.
Achieving these goals, however, is not without its challenges, as managing strategic risk remains a concern for a notable 27% of wealthy families, and a significant 65% admit to having processes that need strengthening to ensure a lasting legacy for their wealth.
Harmony Across Generations on a Global Scale
To ensure harmony across generations on a global scale, family offices are encouraged to rethink their approach to evaluating and managing potential threats to their long-term goals.
“To thrive in the face of challenges like climate change, the existing model may need to be completely reimagined. More broadly, family offices should ask what measures they could take to maintain harmony and common purpose among family members residing in multiple countries,” stated DBS.
DBS emphasises the need to improve engagement with the next generation and ensure safe communication in a digital world as two pivotal priorities in this endeavour.
Engaging the Next Generation
DBS further suggests that family offices should update their service offerings to cater to the specific needs of the younger generation.
In Singapore, where six in ten family offices believe that younger family members expect more comprehensive support, creative thinking around environmental and social challenges could help refine the services provided to the younger cohort.
“Family offices could focus more on setting sustainability key performance indicators and policies, impact measurement and management, as well as more transparent reporting on ESG performance,” explained Kelly Teo from the Monetary Authority of Singapore (MAS).
“They could also invest more in ESG training,” Teo added.
Alignment of Values
For family offices with close ties to the family business enterprise, DBS recommends an expanded view of sustainability and social responsibility that goes beyond the investment portfolio.
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“Executives should ask how they can broaden their thinking around sustainability and social responsibility beyond the operation of the family office’s investment portfolio – and in addition to the kind of new ESG policies and criteria,” shared DBS.
“For executives serving families that are closely connected to the family business enterprise, this might extend to ensuring that the two organisations are not carrying out their sustainability activity from within silos. As such, family offices can ensure alignment on ESG standards, as well as on environmental and climate risk mitigation, and decarbonisation activity,” DBS added.
Moreover, DBS stated that family offices should always strive to learn cutting-edge business approaches from the commercial enterprise, adopting best practice leadership and risk-management strategies.
Unlocking Bold Investment Strategies
To successfully unlock bold new investment strategies, family offices must refine their investment governance and due diligence frameworks, as well as consider potential exit strategies for their deployed funds.
Lee Woon Shiu, Managing Director and Group Head of Wealth Planning, Family Office, and Insurance Solutions at DBS Bank, warned that some families may not be conducting sufficient due diligence on private equity investments.
“Some may even be taking comfort from the fact that a potential investment vehicle has been founded by one of the principal’s personal friends and therefore should be safe. Sometimes private equity deals come with scant information, so you can’t just rely on what’s given to you by the promoter,” Lee added.
Facilitating Personal Ambitions and Passions
With growing wealth, wealthy families often invest in esoteric assets such as wine collections, jewellery, art, private yachts, and private jets.
“The ability to apply their minds carefully to how to manage the risk around some of these new asset classes is crucial for family offices. They need to deal with these issues in a systematic yet innovative way, to manage the exposure to an entirely new dimension of risk,” Lee said.
Now, around three in four collectors in Singapore and Hong Kong are optimistic about the art market outlook. Investments in collectable assets such as coloured diamonds, wine, and cars also remained high relative to wider economic uncertainty.
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