By: Stonehage Fleming
This is a shift in sentiment says international family office Stonehage Fleming
Stonehage Fleming, the independently-owned international family office, says that wealthy families view growth as equally important as preservation. This is a shift in sentiment as post the 2008 financial crisis, preservation dominated their thinking. In addition to feeling more comfortable with markets, this shift can also be attributed to a rising entrepreneurial spirit and increasing willingness to shoulder greater risk in order to achieve growth.
Johan van Zyl, CEO of Stonehage Fleming in South Africa, said:
“Our research suggests a subtle but notable shift in attitude by wealthy families in the long-term management and protection of their wealth and their legacies. Having weathered the global financial crisis, families are increasingly focused on growing their wealth rather than just on preserving it.”
To achieve investment growth, in addition to the principal assets of their family businesses, wealthy families are turning to alternatives, notably real estate, private equity and collectables such as art. The 2018 South Africa Wealth Report produced by New World Wealth and Afrasia Bank revealed that real estate was the largest asset class for HNWIs in South Africa in 2017 (30% of total HNWI assets), followed by equities (28%), business interests (21%), cash & bonds (15%), and alternatives (6%).
Direct private investments, potentially alongside wealthy peers, are also cited as having appeal, suggesting that family offices will compete in the domain of private equity funds. Global equities continue to be the asset class offering the best potential upside over the long term, but skilled stock selection is becoming increasingly important as market valuations rise. Some of the key themes investors are finding opportunities in include technology, changing consumer behaviour and energy and mining. Millennials are far more bullish on alternatives and hedge funds than their parents.
There is also strong evidence of the importance of “social” capital which suggests a link between preserving wealth and benefiting society. Private foundations and direct giving are the most common forms of demonstrating their philanthropy, while some families, particularly those with an entrepreneurial mindset, are likely to use impact investing and micro financing as methods of social responsibility with a financial return.
“Many believe that great wealth can only be preserved across generations if it benefits not just those who are inheriting, but society and the community too. This is a view held even more strongly by millennial clients, suggesting that as they take over the reins, this will be applied more visibly. It is also likely to become more relevant as we grapple with the impact of the fourth industrial revolution,” said van Zyl.
“To achieve their goals, it is important that wealthy families impose a disciplined, strategic investment approach to investing for the long term if they are to have a wealth strategy for intergenerational success,” van Zyl continued.
As part of this, agreeing on the purpose of their wealth is an important process for families, who often have widely differing views on the subject. At one extreme, there are some entrepreneurs who have left nearly all their money to charity, and at the other extreme, there is a family trying to create a 200 year trust with guidelines for distributions across eight generations.
“Ultimately, wealth is only beneficial if it helps family members to lead more fulfilling lives and has a meaningful impact on society,” van Zyl concluded.