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Comment: Factors for investment success – family offices, fund boutiques and “skin in the game

“Only pessimists strike while the iron is hot. Optimists trust that it will not cool down” (Peter Bamm). If one assumes constructive pessimism among institutional investors in the form of professional risk management, the consideration of complementary views from other investor circles can appear enriching. What are the viewpoint of family offices and independent asset managers? Are there approaches where additional aspects of investing can play a role?

Tasks

Traditional institutional investors as well as family offices and independent asset managers accompany similar tasks. Examples: Asset allocation, product or manager selection, risk management. To what extent and to what extent active management for clients or principals is carried out can differ here. Another special area is the use of in-house products (e.g. “entrepreneur funds”, group-owned managers at insurance companies, etc.). The boundaries between “allocation only”, active and passive management often appear to be blurred here.

Time horizons

Institutional as well as family offices and independent asset managers (“fund boutiques”) generally pursue a long-term investment approach. At the very least, this approach results from the task at hand. Due to decision-making structures, this long-term thinking can often be lived differently. One example: decision-makers in larger organisations are more often restricted in their decision-making scope than small, “streamlined” units due to regulation and other internal and external requirements. Extreme example: Principally with a single-family office versus an investment committee with an insurance company. This says little about the ultimate quality and professionalism of the decision – an influence on the speed and flexibility of investment decisions can be assumed here.

Risk attitude and skin in the game

Family offices and independent asset managers take on additional risks when making certain investment decisions, which are often compensated for by long-term thinking. One possible reason is that multi-family offices and these asset managers often offer investments to third parties in the form of their products (family office funds, entrepreneur funds). This situation influences the due diligence process of investors. Additional freedom can lead to a higher risk. Inviting co-investors with your own money (skin in the game) can lead to risky decisions. However, if one starts from the groups of investors that are often found in the family office sector or fund boutiques with classic asset management characteristics, one can come to different conclusions: Owner-managed companies as investors have acquired assets that should now also grow and be maintained with an appropriate return on investment – by investing their own money, they send out a signal by using their reputation and their resources.

Conclusion

Flexible decision-making processes and increased risk appetite in investment decisions are not the only factors for investment success. It may be worthwhile for the classic institutional investor to increasingly look at the expertise of independent providers with skin in the game expertise. Whether in-house products from family offices, entrepreneurial funds, or the classic fund boutiques – a personal exchange of ideas with these investors is worthwhile and provides additional inspiration, in keeping with Goethe’s motto: “If you don’t discuss it, you don’t think about it”.


Source: www.institutional-investment.de
Photo: www.pixabay.de

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