“…We see a growing appetite among HNI and ultra HNI clients for private equity investments in India and the demand increasing from HNI/UHNI investors to allocate part of their assets to this asset class. India is a large and high-growth economy. This is resulting in a dramatic increase in wealth across the spectrum. However, access to good-quality financial advice for families is still difficult. The needs of HNI/UHNI families are also getting complex, and they are looking for a stable, global partner for investment solutions, wealth planning, succession or philanthropy…”
Topic of the week
Wealth doesn’t banish worry, and the experts of Canadian Family Offices would agree as they describe 10 things currently keeping wealthier people up at night, from minor problems to full-blown fears.
New opportunities
Generally, when one imagines the thoughts that keep us awake, we tend to think of fears and anxieties, but sometimes the best ideas pop into our heads when we’re halfway between sleep and waking.
“We do also see families kept up at night by opportunities as well as risks, and I think COVID has had an impact here,” says Ralph Awrey, director of Stonehage Fleming (Canada) Inc.’s family office in Toronto. “Families are trying to figure out how to use their social and cultural capital as well as their financial capital to help their communities, how to best structure and execute their philanthropic efforts: How do we want to use our family wealth?”
Losing it all
“Everyone who’s wealthy – whether they created the wealth or inherited it – is always afraid of the money going away,” says Adam Hoffman, an advisor with Vesta Wealth Partners Ltd., a family office in Calgary. This is despite the fact, he points out, that many highly successful people speak of the remarkable and valuable qualities of their lives before they had money.
Ironically, excessive risk aversion driven by the fear of losing wealth can lead to the kind of poor financial decision-making that can put a fortune in peril. “You should behave like the money could leave at a moment’s notice,” he says, “because if you behave otherwise, you’re probably acting with too much fear.”
Cyber-security
There’s no doubt that wealthy families present a prime target for cyber-criminals, and the vulnerabilities are legion, from hacked financial data to intimate information inadvertently disclosed on social media.
While the family business may be well protected, the family members probably aren’t, says Mindy Mayman, partner, chief compliance officer and portfolio manager with Richter in Montreal: “This is still a special expertise, and most families don’t have a strong grasp of it.”
Families need professional advice to reduce real risks: “Some of it is monitoring and some of it is best practices and education.”
Appointing an executor
No one wants to confront their own mortality, and it can be extremely hard for someone who’s used to pulling the strings to plan for letting go. “Changing your asset mix to benefit heirs when you are gone is a pretty difficult topic for most people.
However, reducing complex and illiquid assets is such a gift to heirs and executors,” says Hoffman.
His best advice? “Don’t necessarily choose an executor based on your existing trusted network; pick one your heirs are going to trust.”
Family disputes
“There probably are as many origins of family disputes as there are people out there,” says Awrey, but they often arise from the assignment of leadership roles or disposition of assets within the family.
“At Stonehage Fleming, we’re very much focused on helping families develop a strong sense of purpose for their family wealth,” he says. “If families can solve for that, if there’s broad understanding, there may not be agreements, but conversations can happen.”
The alternative can be damaging, he says: “When those areas that are causing the dispute aren’t subject to conversations within the family, things will fester.” Thus, making sure family members have effective ways to communicate is the first step to preventing conflict before it arises.
Passing on founding values
For members of the wealth-building generation, it can be challenging to understand and appreciate the outlook of younger folks who have been born into it. And indeed, how can someone accustomed to a big house, private schools and first-class travel possibly share the attitudes of someone who built an empire from the ground up?
Mayman recommends that wealth-builders make time to talk with younger family members about their own journey, including “risks, sacrifices, maybe even failures on the way to success.” She adds that philanthropy is a great tool for education in values as well as finance.
The family member who needs help
Rich or poor, we all lose sleep over that loved one who’s struggling with challenges to their physical, emotional or financial well-being.
“Addiction is one example of how trying to make too comfortable a life for your family can impair their lives,” Hoffman says.
In fact, using money to “fix” the situation can get in the way of healing by helping to hide the underlying problem. Having the courage to withdraw some support may sometimes be a better way to aid self-sufficiency, he says: “Usually people can survive their addiction cycle with a lot less than people used to living a life of wealth could imagine.”
Lack of leadership
“We see families struggling with the reality that different family members may make appropriate leaders at different times,” Awrey says. For example, selling the family business and managing wealth require different skillsets, so it’s important to understand what type of leadership is needed in the moment.
“Can a family train and grow them, or do they need to look outside the family circle?” Awrey asks.
Deciding when to have the money talk
We’ve all heard the stories about the children who had no idea until the reading of the will that they were inheriting a fortune. So when is the right time to divulge the details about the wealth?
For children and teens, it’s enough to teach basic financial concepts, says Mayman. Further explanations can wait until they’ve spent a few years in the work world, she says, but longer delay can be risky, “because it’s not fair to say ‘some day this will all be yours’ without creating a realistic expectation on both sides.”
Preparing the next generation
This is the top dog of all the midnight monsters. “Is this wealth empowering or infantilizing for my heirs?” asks Hoffman. “The key thing to figure out is how you can harness the money and your good privilege into your family culture effectively.”
“You don’t force family members into roles they’re not equipped for, but ready for, passionate for, engaged in,” says Awrey. “It may be that some would benefit by exploring their skills and passions outside the family for a certain time.”
Summaries
Homes Are a Safer Bet Than Stocks
Who: More than one-third of the 2,000 U.S.-based high-net-worth wealthy U.S. residents
What: According to a report by Coldwell Banker Real Estate, 46.7% of consumers polled are investing in property to diversify their portfolio and 46.1% are doing so for a long-term investment.
Where: USA
When: Research took place between August 2, 2022 and August 15, 2022. The survey reached 2,001 U.S. consumers aged 18+ with a household income of $1M+ and who have bought a home in the U.S. worth $1M+. 40% of respondents who are planning on purchasing a home in the future anticipate doing so in the next one to three years, and of those, 72% said that their purchase would either be a second home, a rental property or vacation getaway.
Why:
- Wealthy U.S. residents still consider property to be a safe investment and a safer bet than stocks, bonds, cryptocurrency and pensions.
- While buyers across other segments of the property market may be paralyzed by rising interest rates, high-net-worth buyers are able to explore other funding avenues. More than half of the would-be home buyers polled plan to finance their next home purchase with cash and almost half, or 48.1%, will turn to a private wealth mortgage.
- While the luxury property market is now trending toward balance, there is still insatiable demand from wealthy buyers looking to [diversify] their portfolios and build long-term wealth through investing in real estate.
- With so many high-net-worth individuals having their primary home accounted for, buyers are instead turning their attention to building generational wealth by investing in multiple, often lesser-priced, secondary-plus properties.
US firm buying one of Europe’s largest private lenders
Who: US-based investment manager Nuveen (manages $1.1tn in assets, investment manager for US teachers pension fund TIAA) and Europe-based Arcmont Asset Management (focused on middle market loans for private equity takeovers of between $500mn to $1bn in size).
What: Nuveen is buying Arcmont for over $1bn. Nuveen plans to form a new unit called Nuveen Private Capital, which will house Arcmont and Churchill Asset Management, a New York-based lender it acquired in 2015. The combined unit will manage over $60bn in assets.
Where: London
When: The deal is expected to close in the first half of 2023.
Why:
- Traditional asset managers acquire fast-growing private capital firms in order to grow their presence in unlisted markets.
- Nuveen is to build its lending presence in Europe and expand its overall private credit business as rising interest rates make secured floating rate loans more attractive.
- Large asset managers like T Rowe Price, Franklin Templeton and BlackRock have acquired private debt managers in recent years as a response to the rise of passive investments, which have cut into their profitability. Last year, T Rowe acquired Oak Hill for $4.2bn, while BlackRock acquired Tennenbaum Capital in 2018.
- Anthony Fobel, chief executive of Arcmont, said the firm’s sale to Nuveen will help Arcmont quickly expand globally and increase the size of its lending commitments. “Access to capital is the critical component,” said Fobel. “At the moment we have more deals than we can handle. Access to TIAA’s balance sheet and Nuveen’s global capabilities will really propel our business.”
- Jose Minaya, chief executive of Nuveen, said “Arcmont provides Nuveen with a transformational opportunity to significantly expand our position in one of the world’s most dynamic investment markets.”
Creation of LGT Wealth India
Who: LGT, private banking and asset management group owned by the Princely House of Liechtenstein, combines managed assets of USD 297.4 billion (as at 30 June 2022) for wealthy private individuals and institutional clients and has more than 4500 employees in over 20 locations worldwide.
What: Formed a new entity to offer wealth management services to its clients across India. The entity, with its majority stakes owned by LGT Group, has a headcount of over 200 in India. Further, the venture has presence in as many as 14 cities in the country including Mumbai, Delhi, Chennai and Bengaluru.
Where: India
When: October 2022. In the next 5 years, the aim of LGT Wealth India is to be in the top 3 private client businesses in the country.
Why:
- The LGT Wealth India is expected to help the company cement its position in the Indian wealth management market.
- LGT Wealth India sees growing appetite among HNI and ultra HNI clients for private equity investments in India and the demand increasing from HNI/UHNI investors to allocate part of their assets to this asset class. India is a large and high-growth economy. This is resulting in a dramatic increase in wealth across the spectrum. However, access to good-quality financial advice for families is still difficult. The needs of HNI/UHNI families are also getting complex, and they are looking for a stable, global partner for investment solutions, wealth planning, succession or philanthropy.
- The venture will also enable LGT to further bolster its footprint in Asia, where it also operates offices in Hong Kong, Singapore, Thailand and Australia.
- LGT Wealth India director and chief executive Atul Singh: “The plan is simple: put our clients first by providing a transparent service, designed around what is right for them. We have attracted some of the industry stalwarts and best talent, drawing together in-depth experience across multiple asset classes. By working closely together, we can draw on our varied skills and knowledge, allowing us to treat each portfolio individually and meet the unique needs of every client.”
Links to consider
- The Crypto Story. Where it came from, what it all means, and why it still matters.
- Dana Anspach: How to Build an All-Weather Retirement Plan
- Aryeh Bourkoff — Media’s Hottest Dealmaker on How to Negotiate, Rejecting Constraints, Mastering the Calendar to Create More Time, and How to Play the Long Game
- Ashley Quamme – Bridging the Gap Between Money and Mental Health
- Morningstar math shows annuity products are overkill for many affluent RIA clients because Social Security and portfolio planning render them redundant — a reveal that annuity providers find to be pointy-headed nonsense
- THE GOLDEN ERA OF MACRO INVESTING
- COMPETING TIME HORIZONS OF MONEY – TRAVIS KIMMEL
Infographics
Quotes
Books that caught our attention this week
The Complete Financial History of Berkshire Hathaway: A Chronological Analysis of Warren Buffett and Charlie Munger’s Conglomerate Masterpiece
by Adam J. Mead
For the first time the complete financial history of Berkshire Hathaway is available under one cover in chronological format. Beginning at the origins of the predecessor companies in the textile industry, the reader can examine the development of the modern-day conglomerate year-by-year and decade-by-decade, watching as the struggling textile company morphs into what it has become today. This comprehensive analysis distils over 10,000 pages of research material, including Buffett’s Chairman’s letters, Berkshire Hathaway annual reports and SEC filings, annual meeting transcripts, subsidiary financials, and more. The analysis of each year is supplemented with Buffett’s own commentary where relevant, and examines all important acquisitions, investments, and other capital allocation decisions. The appendices contain balance sheets, income statements, statements of cash flows, and key ratios dating back to the 1930s, materials brought together for the first time.
Publisher: Harriman House
Language: English
Hardcover: 782 pages
The Pyramid of Lies: Lex Greensill and the Billion-Dollar Scandal
by Duncan Mavin
In March 2021, an obscure financial technology company called Greensill Capital collapsed, going into administration. As it unraveled, a multibillion-dollar scandal emerged that would shake the very foundations of the British political system, drawing in swiss bankers, global CEOs, and world leaders. At the centre was an Australian financier named Lex Greensill. With a globe-circling narrative full of scandal and intrigue, Pyramid of Lies reveals how the grubby world of shadow banking really operates.
Publisher: Pan Macmillan (October 21, 2022)
Language: English
Hardcover: 352 pages
Photos
Yes, you can spend your money, time and energy on yachts, dinosaur’s skeleton, whiskey, villas… But what about some clever philanthropy and being nice to the future and people? And that can make you a happy person. Just look at this cool photo of Eric and Wendy Schmidt:
Schmidt Futures announced that it was investing $148 million to fund the Eric and Wendy Schmidt AI in Science Postdoctoral Fellowship, a program of Schmidt Futures. With this newest funding, Schmidt Futures, a philanthropic initiative co-founded by former Google CEO and Chairman Eric Schmidt and his wife Wendy, has now committed a total of $400 million to support the development of artificial intelligence (AI) for scientific discovery for other advances in technology and engineering fields.
According to the announcement, the new funding will initially support about 160 postdoctoral fellows at nine universities around the world to learn and apply AI methods to their research.
The fellowship is expected to expand to more institutions and countries in the future. Each funded university will annually select a new cohort of as many as 20 fellows for up to six years, and they will provide advanced AI training, research support, and professional development to help build a global network of AI-trained scientists.
The fellowships will be awarded to early-career scientists working in a range of disciplines – creating new therapeutic drugs, detecting some of the faintest objects in the solar system, and helping produce and store energy more efficiently. The program extends the tradition of Schmidt Futures supporting and advancing cutting-edge, interdisciplinary science.
According to Stuart Feldman, Chief Scientist of Schmidt Futures, “The Fellowship will provide these postdoctoral fellows with the advanced tools to increase the scope and speed of their research while discovering new and innovative use cases for AI within their field and create an ecosystem of scientific networks that will support them and their work.”
The initial cohort of universities includes:
● University of Toronto
● Nanyang Technological University, Singapore
● National University of Singapore
● University of Oxford
● Imperial College London
● Cornell University
● University of California San Diego
● University of Chicago
● University of Michigan
“Scientific innovation today is too often defined by new use cases for existing technologies or refining previous advancements, rather than the creation of entirely new fields of discovery,” said Eric Schmidt. “This is why we need to accelerate the next global scientific revolution – by supporting broad and deep incorporation of AI techniques into scientific and engineering research.”
“AI is already revolutionary—-but it is not yet as accessible, equitable or interdisciplinary as it needs to be,” according to Wendy Schmidt, co-founder of Schmidt Futures and president of the Schmidt Family Foundation. “By supporting postdoctoral candidates around the world in fields beyond computer science, we hope to create a community that can develop and improve this technology and find novel ways to apply it in solving some of the world’s most pressing problems.”
The mission of Schmidt Futures is to join researchers together in networks to develop and test their ideas and solve hard problems in science and society. Among its programs are the Schmidt Science Fellows, considered to be one of the most prestigious scientific postdoctoral awards in the world.
Schmidt Science Fellows receive postdoctoral support for either one or two years with an annual stipend of $100,000 along with individualized mentoring and participation in the program’s Global Meeting Series, which provides training, introductions to new concepts, visits to leading interdisciplinary scientific centers, and opportunities to engage with thought-leaders from science, business, policy, and society.
Feldman believes that while there are already great examples of scientists using AI techniques in research, the broad use of AI for scientific discovery is still at an early stage. “AI ought to be a very common toolkit and an advanced mindset for many scientists,” he said. “To accelerate that impact, the purpose of this new postdoc program is to assist a large number of young scientists to thoughtfully experiment and adopt new uses of AI thinking and technology at an early stage in their careers, the period where they are most energetic, knowledgeable, and driven to distinguish themselves scientifically.”
In order to achieve that vision, the new postdocs will be used to create academic networks at several of the best science universities over the next half dozen years. “We expect them to excel, and then broadly spread their ideas for AI as a catalyst for scientific discovery as they move around the world to their next positions,” Feldman said. “At that point, this program will have made a broad and major contribution towards accelerating scientific knowledge and its positive applications.”
You may recall that in 2019, Eric launched a new $1 billion initiative called Rise. Each year, 100 talented teens from around the world aged 15-17 will receive scholarships, grants and other financial incentives, summer camps, etc. The selected young people will, in theory, “develop policies and create new ventures that benefit society, stimulate new interdisciplinary fields of study, and develop new solutions to the world’s most challenging problems.” Schmidt saw this as creating a global network of 100,000 young talents, socially, business-oriented, innovative. The first selection of teens took place in 2020.
Eric has already poured more than $1 billion into over 40 different philanthropic educational and research projects through The Schmidt Family Foundation, The 11th Hour Project, Schmidt Ocean Institute, 11th Hour Racing, and Schmidt Marine Technology Partners.
