| History “What’s true of all the evils in the world is true of plague as well. It helps men to rise above themselves.” So said Albert Camus in his novel “The Plague”, published in 1947 telling the story of a plague sweeping the French Algerian city of Oran. Our “Plague” is Coronavirus and it has changed our lives globally. We are all feeling the impact of lockdown and learning to cope with the new “normal”. Are Family Offices managing to “rise above themselves” during this time? Worldwide deaths stood at 227,051 (https://ourworldindata.org/coronavirus) on 30th April which is of itself shocking and it is unclear what the total numbers might look like by the time we are through this crisis. According to Business Insider (https://www.businessinsider.com/), more than a third of the world’s population is now (April 2020) living under some form of lockdown due to coronavirus, some 2.6 billion people. So, whilst during other crises we have been able to gather comfort from the society of friends and family, now we have to deal with our fears and concerns, isolated from those we love and care about. “Unprecedented times” is a phrase that we are hearing constantly at the moment and whilst it is true that we have never experienced anything like this particular pandemic before, humanity has certainly endured calamity and catastrophe throughout its history:
As well as threats to our lives, we have endured and survived economic and financial disasters.
Each of the above was a calamitous event which had a huge impact on lives across the world, taking no heed of race, creed or colour. “Death is no respecter of persons. Natural disasters are no respecters of nations” – Nkwachukwu Ogbuagu” (Nigerian poet, novelist, artist and musician). Some of the changes we are facing are but the revisiting of past times. There is a sudden upsurge in the growing trend toward cashless transactions and the use of card payments, on the basis that the less that money changes hands, the less likely disease is to be spread. What is the impact on you and your Family Office? Everyone has had to implement drastic changes in the running of their Family Office, to allow business to be continued by staff who are forced to work from home. “Pop-up” dealing rooms are appearing in spare bedrooms, Bloomberg terminals appearing in the suburbs. Family Offices are set up for various reasons but two of the most oft quoted are confidentiality and control and of those, control is almost universally the main driver. How are Family Office investments placed in this new world? Our soon to be published Family Office Compensation Benchmark report (global and in greater detail than ever before) indicates that internationally, the leading asset classes that Family Offices invest in are Private Equity, Public Equity and Property. Globally there is also a very consistent trend with regard to return on investment and the large majority of Family Offices achieve a return of between 7.1% – 10%. According to familyofficehub.io Family Offices generally are optimistic about the investment future and “60% of family offices believe in a significantly better situation (on financial markets) in 12 months and 66,7% believe in a slightly better situation in 6 months.” As Churchill said, a “pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.” Other SFOs are actively anticipating opportunities and where there are otherwise strong companies facing short-term capital issues, there may be the opportunity for a serendipitous partnership, the white knight SFO coming to their aid and then remaining as a long term investor and partner, helping them to grow once the storm is weathered. According to a study by familyofficehub.io conducted with Family Offices both in the USA and Europe, most “family offices are already exploring investment opportunities, like distressed equity or bonds”, and many Family Offices are targeting “tech stocks (like Facebook, Apple, Netflix, Google) as well as food companies. Others are preparing private equity purchases”. According to a Bloomberg article in September last year, some 40% or more of Family Offices were “Stockpiling Cash” on fears that the global economy would enter a recession by 2020. Although this view was not built on the anticipation of the specific event under whose shadow we find ourselves, many Family offices have been sitting on the side-lines as markets fell, and they are well placed to invest when they judge the right time and opportunity. Euromoney stated recently that consultants at Bain had calculated long-term investors including Family Offices, had more than $2 trillion of investment capital ready to deploy. With the rising influence of the next generation of decision makers in Family Offices, there is an increasing movement toward Impact Investing. Campden Wealth’s recent article suggests that the “ethos of impact investing for positive change seems tailor-made to tackle the devastating repercussions of the coronavirus”. With carbon emissions falling as factories close and transport use plummets, we are for the first time in generations, seeing clear waters in the usually muddied canals of Venice. According to researchers in New York, “carbon monoxide mainly from cars had been reduced by nearly 50% compared with last year” (BBC news) whilst in the UK, government data “shows a dramatic fall in the use of public transport, with rail travel down 90%, and tube and bus journeys in London down by 94% and 83% respectively” (https://www.theguardian.com/uk 3rd April 2020). Investors in clean tech and the like may well find their investments for the good of the environment, have paid dividends to their portfolios. Family Offices “have a chance to capitalize on opportunities rarely seen in the markets…because this public health emergency, as severe and costly as it is, will eventually pass. Even if other sectors of the economy take longer to recover, the rebound for family offices… could very well come more quickly“ (https://realeconomy.rsmus.com/). Biotech is of long standing popularity to the Family Office investment community and Family Capital (https://www.famcap.com/) estimates that “around 20% of all venture investing done by family investment groups goes into biotech and healthcare”. As a group, they are potentially well placed to survive, even to prosper in the current turbulence of Coronavirus and its associated disease, COVID-19. Family Offices and staffing during the crisis With lockdown across the world and particularly in the densely populated Financial Centres where a lot of Family Offices are based, Lockdown has had a tremendous impact on staffing. Generally offices are closed and people are working (where they can) from home. In the UK, the Government’s Coronavirus Job Retention Scheme (CJRS) is helping across the board to prevent otherwise unavoidable redundancies. But that leaves a small number of people covering for those who have been furloughed compounding stress and strain at an already challenging time. If there were gaps in staffing before the Coronavirus hit, the stress and anxiety will be even greater. Some Family Offices we are working with are keen to progress with the hires they were looking to make but are now unable to follow through with the process to completion. In some cases the candidate has been identified, interviewed, offered and accepted the new role but with the Lockdown, the office is closed and it is impossible to onboard them or undertake any kind of induction or handover. Other SFOs have identified a need and were in the process of conducting candidate interviews only to have their time hijacked, diverted to crisis management and the logistics of moving existing staff offsite to work from home. The new working model may also raise other complications such as looking at security of information whilst staff are working off site, supporting or advising operating businesses in their portfolio or restructuring the asset allocation of the portfolio, implementing changes or acting on perceived new opportunities. In some cases the actual staffing needs may change but planning ahead for what their SFO will need in the next phase – the road toward the lifting of restrictions and the return to the new “normal” – will be crucial toward its future success. We continue to work with clients with active mandates, keeping candidates aware when processes have gone on hold, arranging video-conference interviews and in some cases, sourcing emergency cover at short notice when the need has arisen. Where there remains a need to recruit, interviews are taking place virtually with a view to identifying a short list for face-to-face meetings when that becomes possible. These virtual interviews can be followed up by virtual meetings with other members of the team, gaining insight into the compatibility of a potential new staff member, into the team and the particular culture of the office. When the exit strategy from Lockdown is finally implemented and there is a view on returning to physical offices once again, when the initial logistics of a return and the first priorities of re-engagement are completed, pending recruitment needs will be readdressed. Clients who have used their Lockdown time to initiate/continue processes and are in a position to go straight to final interviews, will have the best choice of available candidates and will be able to get them on board much more quickly than those who have to start the process from scratch. Conclusion COVID-19 has had a devastating effect on world health and the global economy and in such a way that we are isolated and very much in unchartered waters. There are a huge number of variables to deal with. Regarding investing, do you focus on capital preservation or are you optimised for new opportunities? What has been the impact on operating businesses that you own and what steps need to be taken to help them. Do you shore up balance sheets or adjust your asset allocation and liquidate holdings rather than kicking the can down the road? What has been the effect on the running of your Family Office? How are you managing the daily operations and processes. How are you maintaining the security of information with people working from home? How are you looking after the health and safety of your staff? We can take some comfort in the fact that previous generations have felt that they have witnessed the most awful events of humanity and have lived to tell the tale. “Even with all our technology and the inventions that make modern life so much easier than it once was, it takes just one big natural disaster to wipe all that away and remind us that, here on Earth, we’re still at the mercy of nature – Neil deGrasse Tyson (American astrophysicist, author, and science communicator). In his 1963 interpretation of Darwin’s “On the Origin of Species”, Professor Leon C. Megginson stated that “it is not the most intellectual of the species that survives; it is not the strongest that survives; but the species that survives is the one that is able best to adapt and adjust to the changing environment…”. Family Offices are generally small. Family Office employees invariably find themselves taking on frequently changing, expanded, even different roles to that which they were initially employed for. Family Offices attract people who are problem solvers, people without a rigid view of their role (and certainly not of their own self-importance!). Family Offices are adaptable – and as a result, they are probably as well equipped as any to ride out the current storm and navigate to calmer waters and a safe harbour. Fair winds and following seas to you all! (April 2020) To get in touch please email info@agreusgroup.com or you can also call us on UK: +44(0)20 7043 1408 USA: +1 646 774 0220 |