Ultra-High Net Worth Families Now Focus on Liquidity and Have Tightened Risk Management Practices, According to
Family offices that oversee assets for ultra-high net worth families
made few strategic changes in response to the 2008 meltdown and
subsequent volatility. They mainly effected tactical adjustments, such
as increasing liquidity and cash reserves. Family offices also placed
more emphasis on capital call projections.
That's according to a survey of 40 single family offices in the U.S.
provider of independent investment advice and research to
institutional and private investors. The multi-year survey focuses on
family office compensation, governance and risk management practices.
The median asset size of the family offices in the survey was $534
million, and participants represented a mix of
clients and other family offices that work independently or with other
"It's evident from the research that family offices were already well
configured, and although in many cases they tactically made
adjustments, strategically most were prepared going into the financial
Associates. "In addition, as we have studied compensation of family
office professionals, we have observed more alignment between
portfolio performance and compensation."
Some Tactical Changes –and a Few Strategic Adjustments
While largely well-positioned, family offices took the following more
tactical steps to tighten up their approach to liquidity, cash
management and risk management in response to the financial crisis and
ongoing post-2008 volatility:
"We believe that family offices' increased focus on liquidity and cash
reserves now will position them well to take advantage of future
market opportunities, such as European distressed debt," said
Only slightly more than a quarter (27%) of family offices chose to
amend their strategic asset allocation approach. Several increased
allocations to hedge funds, distressed and real estate. Meanwhile,
decreases were seen in public equities.
Impact of Financial Crisis on Management and Oversight Policies at
Family Offices Mainly Confined to Performance Monitoring of External
The most significant alteration to family office oversight involved
the monitoring of outside investment managers. Most (71%) amended
performance monitoring and review of such managers, and nearly half
(48%) updated the due diligence applied to the manager hiring process.
However, only a third said they added more risk metrics to performance
reporting or to their policy statements.
Of the offices that provided information about their use of external
consultants or other advisory services, 83% reported they either
increased or remained constant since 2008 in their reliance on those
"When it comes down to it, the most common response to questions about
changes to family office oversight and management policies in the
post-2008 period was that none was made. Presumably family offices in
general were already comfortable with their oversight and management
practices," said Macauley. "Equally interesting were observations that
the underlying family had a long-term horizon, had the resources to
ride out difficult market environments and, for the most part, did not
initiate changes in their investment policies in reaction to the
Founded in 1973,
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Associates delivers a range of services, including investment
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