Family offices and foundations – due diligence, performance, and staying power

“Why is it taking them so long to make your decision?” is the lamentation of independent asset managers when, after presenting their funds, family offices and foundations seemingly fail to make a decision. Many of the thoughts on this topic can also be applied to the decision-making behavior of other investors. It is often forgotten that it is already an initial success to be allowed to present oneself as an independent address. Especially if the volume in your products seems manageable at the beginning. A first hurdle has been taken. In the decision-making process, the testing phase was initiated. What could be the reasons why testing processes are very time-consuming? Why can there be a yes or no at the end? Which simple findings are perhaps often ignored?

The time horizon for decision-makers

Family offices and foundations are the custodians of the interests of third parties. A great responsibility rests on the fund selectors. Both categories of selectors want to preserve capital, and foundations in particular want to generate a regular payment stream to promote the foundation’s purpose. Hectic decision-making processes seem counterproductive. Many product providers often seem unable to understand this relaxed attitude on the part of the selectors. Besides, they forget that selectors can also be subject to career risk. If the decision is made to go for a less well-known or high-volume fund provider, then a risk position is taken, so to speak – one could have chosen DWS, Union Investment, or Templeton, for example. Suboptimal performance results with better-known addresses can be better justified at internal committee meetings, for example – being at odds with the masses hurts less. Every independent, less well-known asset manager should perhaps ask himself at some point: Why should the fund selector take the rap for me?

Performance and the time factor

If one speaks with certain fund managers, one is always surprised by the filter through which their performance can be viewed. Much of what the fund manager seems to be convinced of his abilities can sometimes simply be attributed to a lack of market knowledge. This is at least the opinion of various selectors. How many of the asset managers conduct intensive competitive intelligence? Perhaps this would be something for research in the asset management sector. Sometimes it is hard to explain otherwise how managers, for example, with one lucky year and two weak years, try to convince investors that they are not justifiably mentioned in the top group. It is also sometimes overlooked that certain selectors evaluate past performance with great caution.

Learning Curves and “Youth Research

Investment processes should appear stringent. They should be predictable, making behavior in certain market situations predictable. This is also because the decision-maker at the family office or foundation itself often has to deal with the issue of portfolio construction, diversification, and correlation. Unpredictable outliers – in extreme cases a change of investment style every month (would also be a fund concept) – should be avoided. All the more interesting the following phenomenon, which can often be found not only at independent addresses: funds were selected, funds have performed poorly on a sustained basis. The following proud insight of the portfolio manager: “Everything will be different starting tomorrow. We have learned! From a human point of view, this is understandable and worthy of respect – but in portfolio management, it is a fact that can be discussed controversially: Is the task of family offices and foundations to be a testing ground for immature fund concepts? How many “wisdom cycles” of this kind can the selector sell to his client? Finally, at the end of the day, the selector is also assessed by his client. This phenomenon is intended to further illustrate why the apparent risk aversion and the seemingly slow decision-making process may well be partially explained by certain investors. Remember: A burnt child shuns fire!

Awareness and Performance

Top performance (risk-adjusted) helps, but does not sell itself. And it is also only one part of the due diligence process. Quantitative factors often create a, perhaps deceptive, feeling of security. Qualitative factors such as manager personality etc. are of great importance, especially in the fund boutique sector. If there is a collective conviction that active management brings added value, then evaluation processes must be in a place that goes beyond simply managing databases. The fact that there are still many decision-makers on the investor side shows the need for qualitative expertise. And this factor can help independent managers to slowly get on the radar of these decision-makers. An independent, non-product-oriented white paper on an investor-relevant topic can often generate more attention than the constant “bombardment” with fact sheets and follow-up calls. At least that is the experience of some successful fund boutiques – solid results that are communicated with staying power. And by results, by no means does it only mean monthly performance.

Know-how – investment companies show the way

The hygiene factor for success with institutional clients is solid to outstanding performance results, at least as a door opener. Specialized capital investment companies show the way – Universal-Investment, Hauck & Aufhäuser, Axxion, and Hansainvest – communication counts. Especially in complex services with a tough price war, I have to score points with know-how, service orientation, and networking. Surveys, press work, in individual cases also sponsoring or sales support – what counts is differentiation and the occasion for communication. Simply to get or stay in contact with customers. Many of the fund boutiques could learn something if you look at the strategies of these “big houses”. For example, how these investment companies market their independent asset managers. In the end, it all boils down to this: staying in dialogue with the customer on issues!


For many independent asset managers, the decision-making process may be too lengthy for trust-oriented selectors such as family offices and foundations. The question is whether one is perhaps knocking on the wrong doors or moving forward with products that are not directly in the focus of these selectors. As long as product providers see themselves primarily as product suppliers and feel little need to develop products in intensive dialog with investors, the wheel of distribution will, as is so often the case, “badly oiled” the usual way. Should new constellations arise on the market, investor talks to an investor about new product solutions, and one create the tailor-made solution in one’s network, then perhaps a new chapter would be opened in the area of product development in the classic fund area. Why shouldn’t something that can be found in complex fields such as infrastructure investments, real assets, etc. in the context of club deals find a positive entry into the classic fund industry? Investors with staying power, who at the same time drive product innovation, perhaps across borders – an innovator group with the “working motto”: In the peace lies the strength!

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