Britain’s choice to leave the European Union set off an avalanche of emotions, ranging from fret and panic, to fear and shock. Yet looking at things from Britain’s perspective, there are several reasons behind this decision. Some of these include the desire to improve its democracy, reform its governance, revitalize the country, enhance trade and economy and control immigration.
There is a lot of anxiety among European and British family offices following this vote to leave the EU. It is expected that the struggling Brexit economy’s fear factor will reshape the region’s family offices operations.
Daniel Pinto, Founding Partner and Chief Executive of Stanhope Capital, one of the biggest investment office companies in Europe, with more than $9.5 billion of global wealth under its management, said that Brexit prioritized the concerns of entrepreneurs, families and charities over lower returns and volatile global markets.
Many Stanhope Capital’s European and British clients were very surprised by the referendum results. They are very concerned about how to adapt safely, mainly due to fear of the unknown.
Pinto said that there is hope of reaching an agreement that will preserve UK’s free trade. However, he added that it will take some time before people understand the consequences of Brexit.
Pinto said, “You have to look at asset classes in relative terms. Yes, equities are more volatile but they are providing now prospects of substantially higher returns than bonds. There is a trade-off today between liquid and illiquid assets. If you are prepared to accept more illiquidity, you are able to recapture higher returns in asset classes. That means private equity, real estate and private debt. That is clearly a trend we see going for the next few years, it’s not a short-term trend, and clients understand it.”
According to Pinto, three family offices models were trending globally before Brexit. The first family model involves a family creating its own family office, with one or two executives, for administrative reasons. This model did not involve any particular investment project.
In the second model, a family hires investment professionals specialized in asset allocation. However, the assets’ actual management is delegated to third party investment managers. In the third family office model, a family hires a full internal investment team that will be responsible for making all investment decisions.
Over the past 4 years, majority of family businesses have preferred the second model after realizing the difficulties of getting all the necessary expertise and skills in-house.
Nevertheless, most of the family offices using the second model are still directly involved in real estate investment. They are interested and conversant with property management.
Pinto’s expects the popularity of the second model is likely to increase as families continue to question their capability and preparedness to manage future difficult investments.
Pinto said: “Do we want the hassle and worries of having all kinds of people in our family office dealing with these uncertainties without necessarily having the tools to do that.”
Featured Image credit to Jeff Djevdet via Flickr (CC BY 2.0)
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