Family office use of wealth manager predictions

As part of my role on the investment committee for various family offices, I regularly interact with wealth managers. These interactions range from routine monthly meetings to more spontaneous discussions, often centred around specific investments. Many family offices lean on the expertise of these wealth managers, particularly for insights into capital market trends, to help guide their overall portfolio strategies.

The role of capital market expectations has become increasingly significant. In times past, surpassing a CPI + benchmark was a relatively straightforward goal. However, in the current climate of heightened inflation, some managers are revising their benchmarks to mirror various risk profiles more accurately, including balanced, growth, and high-growth portfolios.

In determining expected returns, I've noticed managers' tendency to choose a risk profile and then construct the portfolio to match this risk level, often prioritising it over total return. The cornerstone of this approach is strategic asset allocation (SAA), which is based on anticipated returns from assets over the long term.

This leads to an important question: how can we effectively utilise these well-researched, yet not always accurate, predictions to refine our internal investment strategies?

Diversity of Perspective

External portfolio managers and researchers can provide the internal team with much-needed diversification in perspectives, as often the bubble of the investment office requires a devil's advocate that challenges the group's thinking. This can provide economic, geopolitical, and sector-specific insights and can lead to more informed decision-making.

Depth

It's rare that a family office will have one wealth manager. When looking at incumbents and potential new managers, one of the biggest drawcards is the transfer of IP and how much they are willing to share. The best are confident in their ability to provide value in the long term.

Range of Expertise

A significant advantage of working with wealth managers is their access to a broad spectrum of asset managers, each bringing unique insights to the management of family assets. The most effective approach I've observed is when wealth managers update us about different asset managers and provide their own analysis of how these options align with our management priorities. Merely forwarding information is not enough; meaningful engagement and tailored insights are essential for effective relationship management.

Risk management

Wealth managers who oversee a diverse portfolio across various client types and investments generally have a more comprehensive understanding of where risks are concentrated. Family office advisors can offer an overarching view of risk, a perspective that an internal team, which may have a narrower focus, might lack. This broader view is invaluable in developing robust risk management strategies.