Family offices embrace creative thinking

16 December 2019

It almost sounds too good to be true: having more cash available than it’s possible to invest. Increasingly, however, it’s a scenario family offices are experiencing, bringing challenges and opportunities for creative thinking.

Just like any investor, family offices have always looked to mitigate risk in their portfolios by diversifying their assets, spreading investments across a variety of hedge funds, private equity funds, real estate, bonds and potentially some venture capital. In today’s market however, and with fears of a global recession, geopolitical tensions and trade wars, most family offices are accumulating cash as they find fewer investment opportunities either due to perceived risk or overly high valuations.

While the situation is complex, one surprising feature that we’re seeing and hearing a lot is that family offices are deliberately choosing to invest with more creativity.

Most family offices have planned very carefully with cash reserves in case there is a global growth slowdown, but there is still significant opportunity in the market. In some ways it’s business as usual – from an investment perspective, a family office wants to put the family’s money to work – no one wants idle money creating a cash-drag. Because there are so many different macro factors at play in the market, this translates to family offices thinking outside the box with their investments and diversifying in ways they haven’t done before. In some ways this is also borne out of need, as competition is so extreme in more traditional areas.

There’s no particular rhyme or reason to where family offices are looking to invest, although green tech and clean energy, direct investments, emerging markets, and longer-term investments are typically all in contention.

Inspired to think outside the box, family offices are increasingly looking to set up private funds, and ZEDRA is able to support this with its Protected Cell Companies (‘PCC’) offering. Essentially, the PCC provides one or more separate ‘cells’ – hence the name – each of which is owned by an individual group of investors. In this case, the PCC gives a family, under the guidance of their investment team at the family office, the flexibility to invest however they like, in line with the family’s investment objectives.

In today’s UHNW families, we often see members of the family, or the family office with particular specializations or interests, which steers their investment strategy. They therefore want to be able to hand-select their investments, decide how much risk they want to take on, invest in-line with their own ESG factors and run their own analysis of investments. A family office can very efficiently create a unique universe for the family by using a PCC.

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