Lessons from a billion dollar family office

In 2009 the Wharton Family Alliance conducted a study that looked at how the "family offices" of the very affluent were able to weather the financial storms of 2008-2009 with very small losses, or in many cases, strong gains.

There is an interesting article in yesterday's Globe & Mail on the subject that looks at the study and identifies three key lessons from the top performers. 

About the study:

In 2007 and again in early 2009, the alliance conducted interviews with wealthy families; 40 per cent had assets of more than $1-billion (U.S.). Half these families were in Europe with 44 per cent in the United States, Canada and South America.

These families have very long time frames, investing with future generations in mind; their returns are often compared to large endowments such as Harvard or Yale.

With that as a comparison, the performance of these families through the 2008 and 2009 downturn was exceptionally good. In the twelve months to June, 2009, Harvard’s and Yale’s endowments each lost more than 25 per cent. By contrast, only 45 per cent of family offices (a professional management organization owned and controlled by the wealthy family) in the study suffered losses over 6 per cent, and 15 per cent actually had positive returns.

The approaches of the top performing family offices were characterized by three common themes:

• Clarity of purpose
  Characterized by clear direction to financial advisers.
• Education and skills
  A focus on cultivating the knowledge and skills required to be a true partner in the managing of investments.
• Healthy skepticism
  "A healthy skepticism about hot trends and unproven approaches to investing – many of the top performing families steered clear of the financial models and algorithm-based approaches to investing so popular in the period leading up to the financial crisis."

Applying this to real estate, it tells you a lot about what to expect when dealing with the very affluent when buying or selling real estate.  It should also inform your approach to dealing with them. 

• Communication and information are especially important. Listen and be clear on their goals and desires.
• Expertise.  They will have a high level of market knowledge and expertise and will demand even more from you, particularly with local and property-specific information.    If you can't match and exceed their knowledge what is your value as an adviser?

From a marketing standpoint, these priorities--expertise, market knowledge, communication, approach-- give you some of the key issues you will need to address in your positioning. 

It also explains why a good market report is one of the most effective tools in a luxury agent's marketing toolbox.