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HomeInsights & AdviceJames Richman: family offices tap billionaire’s expertise to survive downturn

James Richman: family offices tap billionaire’s expertise to survive downturn

by LLB Reporter
15th Nov 19 1:30 pm

Several industry reports reveal that several family offices are currently looking at Latvian-born billionaire, James Richman’s example on how to better prepare for the upcoming economic downturn.

An imminent economic downturn is widely expected by several financial experts. They see it coming in the early portion of 2020. Knowing this, several family offices around the globe have been observed to be making security measures to ensure that their managed generational wealth could withstand such an upcoming event.

What do family offices really need to do to better prepare for the upcoming economic downturn?

Are they able to copy a trick or two out of billionaire financier James Richman’s handbook on how his managed private investment fund was able to navigate through and even thrive during the 2008 financial crisis?

Signs of recession mounting

There are certain reasons why family offices, firms that invest the wealth of the super-rich, are preparing for a downturn in financial markets. A recent survey was conducted among 360 family offices, and 55% of them believe that the global economy will dip into a recession before 2020 ends.

One of the reasons for this belief is the impending Brexit. Around 65% of the survey’s respondents admitted that the UK’s appeal as an investment opportunity would be tainted.

Another cause of concern is the tension between the United States and China. Over 90% of those surveyed attest being affected by this. Others also considered political instability in Hong Kong which has recently officially entered into a recession is a major concern as well.

Dropping performance

The average return of the surveyed family offices sank to 5.4 percent for a period of 12 months up to May this year. This was hampered by the sub-par performances from their holdings of publicly traded equities in developed and emerging markets.

Rebecca Gooch, director of research at Campden Wealth shed some light on this, “Family offices have been navigating volatile markets and this is reflected in disappointing returns across most asset classes. The notable exceptions were illiquid investments which continued to perform well”.

Searching for Plan B

Private equity, real estate, and hedge funds, considered as alternative investments, comprise 40 percent of the average family office portfolio, remarkably higher as compared to public pension funds.

Considerable chunk of many family office investments are often parked in commercial real estate investments

It is expected that the allocations to alternatives will increase further. According to a net 39 percent of respondents, they expected an increase in direct private equity investments in 2020 and a net 28 percent expected to increase their involvement via private equity funds.

The real estate maintains its image as a juicy proposition for family offices with a net 16% aiming to raise direct property holdings in 2020. Another attractive proposition is precious metals. A net 12% expects to increase their allocation in gold next year.

Sara Ferrari, head of the global family office group UBS, shared that, “Family offices are looking to increase their allocations to real estate and private equity, particularly via direct investments which offer greater operational control. While family offices are concerned about the uncertainty in financial markets, they remain convinced that illiquid longer-term investments can deliver superior returns”.

Sustainable impact investing

An estimated 33 percent of family offices are involved in sustainable investment strategies. These existing investors are expected to increase their average portfolio allocations from 19 percent to 32 percent within a span of five years.

A good benchmark

Given the trend and expectations of the surveyed family offices, it appears that they have made sufficient adjustments to prepare for the looming recession. Their exposure to alternative investments and impact investing is like page out billionaire James Richman’s book on how was able to survive, or better yet, thrive during the 2008 financial crisis, and for several others to imminent to come.

However, it remains to be seen if they could indeed replicate the success of the Latvian-born secretive billionaire. His decade-long success despite several economic downturns has turned heads and given birth to comparisons with hedge fund billionaire Steven Cohen, minus the several controversies, of course.

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