We help families establish a shared vision, an effective governance structure and a plan for how to empower the next generation to preserve and nurture the family heritage.
At first blush, it can appear that a Single-Family Office, free from influence by financial institutions or other outsiders, will be most independent. However, there are risks involved. Without careful governance controls, investment decisions may be unduly influenced by friends, advisors or family members with limited qualifications. The result is diminished objectivity, which can fuel potential conflicts and dampen investment performance.
"From shirtsleeves to shirtsleeves in three generations" is sadly a reality for many families. Why is it so difficult to maintain wealth over multiple generations?
Setting aside political revolutions, economic crises and evolving tax regimes – all of which are significant factors in long-term wealth management – wealth loss is often a cumulative process.
A few weeks ago, a simple altercation between two men on a subway platform escalated to a complete lockdown of London’s busiest shopping district. This incident was a perfect example of how the behaviour of a misinformed crowd can lead to astounding outcomes.
The global economy is experiencing a highly-synchronised acceleration of growth. The expansion is broad based, covering all major economies and regions. Despite the absence of inflationary pressures, the strength of US data has helped affirm the Fed’s monetary tightening trajectory. In Europe, it enabled the ECB to moderate its quantitative easing measures.
The old saying “from shirtsleeves to shirtsleeves in three generations” describes the inconvenient fact that family wealth is generally not being passed on beyond grandchildren. Reviewing Forbes’ Billionaires List indeed reveals that about two thirds of the wealthiest families are first generation, only 20% second, and a mere 10% third.
Why is it so difficult to stay wealthy for many generations?
Since November 2016 we have taken the view, that long term interest rates are set to rise. We believed the Trump administration would enact expansionary fiscal policies. With the economy near full employment and wage pressures rising, the stage is set for inflationary expectation to rise. At the same time the Fed’s policy is on a tightening cycle. Taken together all these factors suggested that long term interest rates were bound to rise. Yet, not only has this not happened, but long term rates declined this year.
Two months before its due date, the USD 2.1bn PDVSA bond maturing in April 2017 was trading at 36 cents to the dollar, a sign that Venezuela was about to default. However, against all odds, on April 6th, PDVSA paid and bondholders got their hopes up again. Just two months later, investors renewed their concerns over Venezuela’s ability to pay. Fund managers are swapping their short dated bonds for longer ones and most of them see a debt restructuring as an unavoidable outcome. So what has changed?
As far back as the 6th century, Italian upper nobility had Major Domos taking charge of household and financial affairs. Today, wealthy families are more global than ever, and often rely on professional teams to navigate these increasingly complex responsibilities.
The benefits are plentiful.
