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Rethinking An Investment Model For HNW And Family Office Investors

Rethinking An Investment Model For HNW And Family Office Investors by Brookvine

Abstract

Our distinct impression was that the CIOs and Advisers to HNW/FOs who partipicated in Whiteboarding 1.0 have a fairly realistic sense of what can be controlled, a strong appreciation of the human element involved in their decisions, and a willingness to accept and live with uncertainty.

While much can be learnt from large institutional investors, many CIOs and Advisors to HNW/FOs work in a somewhat (if not entirely) different way. Perhaps the most significant difference is that ‘clients’ are usually more engaged, real and dynamic. This and other differences have a powerful bearing on individual investment approaches, strategies and decision-making.

From their insights and concerns we’ve attempted to infer the current investment model for HNW/FO investors and what its approaches, strategies and opportunities look like. The model (to be compared to the traditional institutional model) tends to have the following characteristics:

1. Advisers/CIOs are educators and influencers, not just allocators. They need to be good advocates and listeners as investment objectives are informed by expectations of both financial and lifestyle values.

2. Less concerned with volatility or tracking error, more concerned with the possibility of not meeting objectives and protection of capital.

3. At times opportunistic, typically with higher conviction, far less diversified by investment opportunity and style. HNW/FO decision-makers tend to be more idiosyncratic in their preferences with less attention paid to industry norms.

4. Limited use of Modern Portfolio Theory including optimisers and other risk management tools. As well, cash is an active component of portfolios, at times held at quite high levels. Transparency is important with a strong desire to eyeball managers.

5. Stronger preference for local managers...


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