A family office is after all, endeavouring to professionally set strategy and manage a family’s substantial investments and business interests. There can however be FOMO or ‘fear of missing out’ risk which family office boards and management can be tempted or mistakenly step into. This is principally manifested in two ways:

• A family office sets a long term (3 years +) Investment Return Target (IRT) which supports its funding and endowment objectives. It does this through its agreed Investment Policy and supporting asset class management programs.

• A family office may have its own internal investment management or may outsource some or all of this function.

• As we have seen over the last few years with elevated valuations for risk markets, these market returns can exceed the organisation's investment policy IRT for a period of time. It is sometimes seen therefore, that family office board members can get a ‘pang’ of FOMO and feel they are missing the trend return. As as a result, they change their long term risk construction to achieve a higher short term return target based on prevailing trends. The converse is true when parts of a market underperform for periods of time and notwithstanding the long term nature of the IRT and portfolio construction, FOMO results in short term changes, invariably at the expense of a well thought out and designed investment policy and strategy.

• The risk: is that the family office, most often its board members, pressure internal or outsourced management to drive to short term market benchmarks and in the process, dilute the otherwise paramount importance of the long term IRT

• Recommended action: family office board members as part of their induction program undertake proper training into the construction of investment policy construction, how it has developed in the specific family office, how the board oversees it, and importantly, signs off that they understand their responsibility to implement, review and adhere to it [a family office board member should have a position description]. A board member is a fiduciary and ‘governor’ of the investment policy. This makes it clear what their specific responsibility is and that they will be held accountable.

• A family office is most often established by matriarch/patriarch founder(s). Their success sees them often being a dominant board or committee member. They have the need and desire to still express and participate in individual risk investments or entrepreneurial ventures

• This can be at odds with the core investment policy and long term IRT, and can result in the core investment pools subject to the investment policy being manipulated, pulled and diluted. This is obviously undesirable and has the potential to create undue instability to the core capital strategy

• The risk: Independent board members are faced with a dilution in their strategic oversight role and operating to the agreed investment strategy.

• Recommended action: that the family office board countenances this situation in the development of investment policy and the capital management pools. Much will depend on the governance structure for the family office. This can be addressed through separate risk pools or a ‘withdrawal’ policy for family members to accommodate other risk investments. Overall, it is typically best not to intertwine conflicting investment policy purposes as this makes management and accountability to the IRT very difficult.

Whether developed through business or accumulated through personal and/or investment endeavours, the owners of significant wealth face a myriad of issues and complexities in managing their wealth.

Significant wealth requires an articulated strategy to deliver on a family’s goals and address the myriad of issues and complexities you face. Our expert team can advise you on your needs from strategic planning, investment solutions, global asset custody and reporting, asset allocation, business succession, enhancement and protection of wealth, philanthropic activities, and generation-to-generation planning. Ultimately, we seek through our planning process to simplify the complex.

Cameron Harrison have been advising business owners and their families on asset allocation and intergenerational wealth management for over 50 years. We have demonstrated over a long period our ability to manage investments through both the good times and bad by keeping the client at the centre of our business.

For more information on our approach to investment strategy or any other inquiries, please contact us at +613 9655 5000.