‘Passion Investments': A New Avenue For Family Offices?

Author:Ms Rosalyn Breedy
Profession:Wedlake Bell

Risk-assessment and good governance should not be overlooked when family offices decide to take philanthropy to the next level, writes Rosalyn Breedy.

This article was first published in Spear's Magazine on 31 August 2016.

Warren Buffett, Bill and Melinda Gates, Azim Premji, Richard Branson, Sara Blakeley, Manoj Bhargava, Patrice and Precious Motsepe, Paul Allen, Mark and Priscilla Zuckerberg are examples of billionaires that have chosen to direct their wealth towards solving problems.  They recognised that they had a unique opportunity to improve the lives of many and have set up foundations to do so, giving away vast amounts of their wealth.

Traditionally, family offices had their origins in the landed estate office in the UK and as the investment vehicles of US industrialists such as John. D Rockefeller.  Key objectives have always been to preserve wealth and facilitate its transfer across generations.  According to EY, there are now between 3,000 to 15, 000 family offices worldwide, over half having been set up in the past fifteen years.

One of the attractions of the family office structure is its flexibility. The founders can determine its strategy for investment and distribution, specifying who should benefit and how.

While philanthropy and legacy arrangements have always been a part of family office strategy, these 21st century billionaires are taking philanthropy to a new, more passionate level.  One trend that has emerged in the last couple of decades is increased involvement in sports teams - often called a 'passion investment'.

The new family office investment strategies are reflecting a fresh set of priorities which follows from a major demographic change.  According to Accenture, in North America alone, right now $12 trillion in financial and non-financial assets is expected to pass from the Silent Generation (born in the 1920s and 30s) to the Baby Boomers (born in the 1940s and '50s) and over the next 30 to 40 years some $30 trillion is expected to pass from Baby Boomers  to their heirs (born in the 1960s  and '70s).

The increase in transfer of wealth between generations is replicated across the world but is effected differently.  For example in Asia Pacific, where family companies account for a significant proportion of each country's economy, the transfer of wealth is typically from a first generation entrepreneur who is in their 80's or 90's to the second generation.

The younger generation has few successful role models...

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