The oft-cited quote “don’t let a crisis go to waste” is equally applicable to the single family office sect. While the responses to COVID-19 are certainly as varied as the offices themselves, there are key introspections to be gained from this unprecedented time. Some will apply to all; yet some will connect to only the largest of offices.
Even the smallest offices sent employees home—first, with thoughts of safety. Then, the focus turned to productivity. On the one hand, family offices can be nimble and equip the team with technology and the ability to work from home, but a lack of scale can limit resources and increase cyberrisk. This event has been a great test of business continuity plans and determining the effectiveness of remote working. As work options open up, economics and efficiencies should be considered as to whether expense savings of working from home can balance decentralized technologies and foregone team member interaction.
While we’re talking about employees, the crisis can be a good opportunity to consider staffing levels. Family offices tend to run a bit lean with each member of the team called upon to wear many hats. As you reflect on how processes held up from transition to efficiently handling the crisis, did any gaps emerge relating to whether you were over- or understaffed? Some offices have shown improved efficiencies and more capacity than expected when surplus activities have been removed. Other cases have proved that too much has been asked of the team and the current stressful environment is pushing the office’s most valuable assets to the limit. Time to ask the team about stress levels, workflows, opportunities to improve.
A survey conducted by UBS and Campden Wealth in 2019 found that 55% of family offices interviewed expected the global economy to sink into a recession by the end of 2020. However, none expected a worldwide pandemic and the fastest bear market decline in history. Regardless of how prepared we were entering the downturn, the question should be how did we respond?
Family offices are known as patient capital, opportunistic, and some of the longest-perspective investors in the marketplace. So with the correction largely behind us and markets still ripe with opportunities, have your actions matched your strategy?
Most of the offices I work with stayed the course but increased access to liquidity in order to be ready for better valuations. Mr. Buffett isn’t inclined to put his money to work right now, but others have been rewarded. We’ve been reading about the Saudi Arabia sovereign wealth fund, KKR, Silver Lake all using the crisis as a buying opportunity. Whether staking positions in beaten-down public companies or buying companies outright, there have been plenty of opportunities.
So, which strategy will prove most successful? Perhaps the better question is what is your strategy, how has your team executed against this strategy, and does this strategy remain appropriate against the family’s mission and governance? If your investment team froze, sold out or was caught more exposed than intended, then a fresh review of the process is appropriate.
One more thought regarding crisis assessment. How did your advisors respond? Even the largest, most developed family offices still outsource certain functions. Legal, accounting, technology, banking, credit, custody, insurance and even travel are functions for which outside advisors can play a key role. So, how did they do? Were they there for you, were they flexible when needed, did they provide appropriate advice? It’s hard to know what or when the next crisis will be, but advisors who met or exceeded your expectations this time can be expected to do so in the future.
How prepared were you (governance), did you meet the family’s expectations (mission), did you manage risk while realizing opportunities (strategy). These are appropriate questions for family offices always, but COVID-19 has shone a light on virtually every area of a family office. So, don’t let this crisis go to waste. Plan now to get your key stakeholders in a spatially appropriate conference room or on a secure Zoom session, and ask for and give real feedback.
Joe Freeman is head of Family Office Services Abbot Downing.
Abbot Downing, a Wells Fargo business, provides products and services through Wells Fargo Bank, N.A. and its various affiliates and subsidiaries. Wells Fargo Bank is the banking affiliate of Wells Fargo & Co.