A guest blog by Agreus Head of Communications and Engagement, Jacqueline Gordon.
Yesterday I was privileged enough to attend the Global Family Office Conference in London, the 7th of its kind and the first in-person Family Office event since 2019.
The day saw more than 150 Family Office Leaders and Professionals congregate to discuss everything from economic trends and investment challenges, to reputation and privacy. Agreus Co-Founder Paul Westall was also lucky enough to be invited to the stage to offer his take on Executive Compensation and Bonuses, offering our key findings into people and investment trends within the Family Office Community and how each have impacted compensation.
While it was incredible to be surrounded by a whole lot more than six people, there were many others who could not be there and so we thought it was worth putting pen to paper and offering our key takeaways from the day.
- The Economist
The first segment of the day looked into the promises that the digital world offers that the physical world cannot fulfil. The audience heard about a pledge by world leaders to move to electric vehicles by 2030 and how it is logistically impossible due to a copper shortage. The example was used to encourage Investor Families to look beyond a storytelling narrative when seeking opportunities during a crisis. We looked at year-to-date returns across key asset classes and found Cryptocurrency and ‘Green’ have both decreased. In fact, they were two of just four asset classes with a decline reported over the last 12 months which counteracts the fairy-tale narrative of a green, digital future that we hear so often today.
- Global Economic Trends
The next talk of the day led by a panel of both Principals and Providers alike, delved deeper into today’s Family Office Climate. Describing the last 12 months as a war on the wealthy, the panel spoke of the community’s suffering which has been accelerated by the pandemic. They also however emphasised the theme of the day which was concerns and opportunities.
While providing a stark challenge, the panel drew some positives from the pandemic, namely the global awakening to the healthcare and life science sector, a move towards prevention and an understanding of the role that the Private and Public Sector can play together. There was equally a focus on being human with one panellist stating ‘the pandemic was a defining moment. We cared about people. It didn’t matter if it was your child or your employee, the pandemic taught us to be human again’.
People management and stakeholder engagement was discussed as the conversation moved into equality. Equality of people, specifically a gap in wealth and a gap between generations. There was a focus on philanthropy and ESG and a parting plea for the audience to make great change. Afterall, as another panellist stressed: “It is all too easy to discuss ESG from a Ballroom in Mayfair but do our words lead to actions?”
- Technology
Human Intelligence over Artificial Intelligence was the key message to take away from the day’s discussions around technology. While we can undoubtedly use and rely upon technology to save time, automate back-office processes and make real change, it will not and cannot replace the human relationship with your staff, nor does it equal personalisation. It can also, if not used correctly, provide a huge risk for smaller Family Offices who are unable to adjust to a digital age.
- Tax and Regulation
There was an emphasis on mortality and how Principals of all ages came to the realisation that they will not live forever and they need a succession plan for both their wealth and leadership. This was a focal point for many Trust and Corporate Services Providers in the room as they sought to forecast for families as was the continued theme of opportunity in crisis.
A Commercial Property Lawyer on this particular panel spoke in detail about repurposing property. As we already know through our research, Real Estate has always been classified as one of the top three asset classes alongside Equities and Private Equity. The pandemic has proven a great challenge for those, particularly in Commercial Real Estate with footfall on British highstreets dramatically cut by the coronavirus pandemic. The transition from Commercial to Residential Property was discussed as a huge opportunity amid a crisis as the panel introduced the regulations and approval needed to transform uninhabited property into homes so long as they are for instance, over 16,000 sqm and proven to be unoccupied.
- Reputation
One of perhaps the most fascinating parts of the day was the idea of protecting your Family Name. As a Cyber Security expert professed “if reputation is what someone thinks they know about you, privacy is what they know of you.” Reputation and Privacy were described as twin assets, assets we seldom do anything to protect.
Cyber Security is an often discussed topic that rarely gets a mention in the Family Office world and this part of the day was dedicated to helping families manage risk. The three types of typical data breaches were touched upon which included mistaken identity, those with prior vulnerabilities and targeted attacks. Tangible next step were also offered to Family Offices and included checking for previous breaches online.
One Principal had his personal email hacked without his knowing and having repeated the password for his Family Office domain email, it was a simple hack to follow. The first step is to look back at Family Office Leaders and employees who have been previously breached and then comes protection – using difficult and different passwords to protect your family wealth online in the same way you might in everyday life.
- Compensation and Private Equity
Our Co-founder Paul Westall was invited to speak at the event to discuss the key findings from our 2020 Compensation and 2021 Bonus Benchmark Reports. To condense 10 years and 100 pages of findings into one speech was tricky but he offered the most important findings which included the fact that 63% of Family Offices have increased their investments in Private Equity over the last 12 months. It is undoubtedly a growing asset class within the community that has hugely impacted compensation and specifically, bonuses.
Paul also introduced the key trends of hiring your next-generation leader, the importance of a long-term incentive plan and how a move to portfolio diversification has paid off for Family Offices with 59% reporting a growth in their AUM over the last 12 months, 39% stating they remained largely the same and just 2% reporting a loss.
Some of our other key findings included the fact that 82% of Family Office Executives receive a performance bonus, 76% of investment professionals say their bonus is not dependent on asset class and 67% of Family Offices increased their direct investments.
With more assets under management, a newly diversified portfolio and larger in-house teams to manage both, Paul stressed the importance of benchmarking Family Office Compensation.
- ESG
The final panel titled ‘families as a force for good’ focused on exactly that – the three-fold increase in philanthropy witnessed and conducted by the community over the last 12 months. The panel led by Principals and Philanthropists detailed their own families’ achievements in ESG and Impact Investing and the absolute correlation between ‘good behaviour and making money’. The panel explored how to measure the success of a philanthropic initiative and how rather than repurposing metrics used for investments or financials internally, a structure should be created to reflect the definitions and objectives of each initiative.
One Principal known as a Philanthropist within the European Family Office Community spoke of the five criteria he uses to measure ‘good’ within his charitable work. A combination of both qualitative and quantitative data, he creates a baseline to track progress and spoke of creating ‘a lens for sustainable prosperity’.
As we touched on earlier, ESG was broadly and repetitively described as ‘political wording that needs to see some action’ and the day was ended on the note that you need to create a double-bottom line where impact meets philanthropy. Just as the day started, the audience ended with a reflection that within every challenge there is opportunity and within that opportunity you can be successful and you can also be human.