Passing the Baton: Advising on Family Succession Planning

Family offices behave completely differently than institutional investors, and this brings unique challenges to dealing with them and in particular with respect to succession planning.

It is illustrative to begin by describing institutional investor behavior. If you are a pension fund trustee, a finance committee member of a charity or a director of an endowment oversight board, your role in looking after the investment funds is in practice quite constrained by the fiduciary and regulatory obligations you will have.

These are twofold: first, capital preservation (i.e., do not lose what you have already). Second, in the overused words of the market, “generate superior risk-adjusted returns”. What does this mean in practice? It means that you are typically required to appoint an advisor to define the appropriate asset portfolio, taking into account the liabilities of the fund (pension fund payments, planned charity disbursements and endowment commitments). This sometimes requires complex modelling and a particular regard to the liquidity profile of the assets. Once the asset profile has been defined, the fund has to select and appoint managers to allocate the assets to. This also requires minimum hurdles to be met. The fund manager needs to have a track record for at least three to five years, minimum assets under management of a certain size and have undergone extensive due diligence checks.

This article is based on a guest speaker talk given at Berkeley Research Group by Konstantin Graf von Schweinitz, a nonexecutive director and advisor to family offices, private equity companies, hedge funds and banks. He writes in a personal capacity.