A few years ago, I had the good fortune of bumping into someone (let’s call him James) that had a significantly more advanced financial life than my own. He’d made money in construction a few decades ago and now lived a relatively comfortable life on the proceeds. Some of their family still worked but mostly pursuing interesting opportunities ‘as and when’ rather than being ‘forced’ into jobs they didn’t really want. I spent an afternoon speaking to James about how he managed finances and picked up a few interesting ideas.
Despite being effectively ‘retired’ in the sense that you or I would understand it, James was still a busy man. A large family and significant social and business interests kept him on the move, and he’d created a quasi ‘family office’ to oversee his financial affairs.
For those that are unaware, family offices are wealth management companies that serve Ultra High Net Worth individuals. They typically come in two flavours; Single Family Offices and Multi Family Offices. The latter effectively ‘groups’ the finances of a number of wealthy families whereas the former serves a single family. They provide a range of services from traditional wealth management, philanthropy advice, tax planning, family diary management, insurance management, legal support and cash management (among other things).
As a much less wealthy individual, some of the principles of a family office don’t really apply to me, but I was interested in James’ approach to investing. Essentially, he grouped his ‘investments’ into three pots;
- Public Equities. Like me, James wasn’t a fan of passive investing but otherwise focused on highly diversified, low cost investments in everything from small to large cap stocks. He invested across all sectors and across all asset types (individual companies to hedge funds, investment trusts and ETFs).
- Private Investments. As an UHNW individual, James had redeployed significant capital into private companies – he was actively involved in around five of these and had employed managers to oversee the others. Many of these opportunities sounded a league beyond anything I’ve ever been involved in – multi-million pound investments across Europe, often with a focus on innovative and new technologies.
- Physical Assets including Real Estate. James used physical assets such as gold, art, watches, whiskey and wine, and investments in real estate as a ‘wealth preservation’ tool. He was extremely focused on buying ‘premium’ assets or those with the potential to become premium with some work and using his capital to develop them. He tended to buy ‘batches’ of assets with capital and leave them alone. Interestingly, he considered the first two categories a poor preserver of wealth buy an excellent builder of them.
After speaking to him for an afternoon, I wasn’t surprised at the commonalities between our views – mainly because I’ve spent a fair amount of time studying investment and have more than a passing interest in family offices. The big difference between us was essentially the scale of his investments which enabled him to access opportunities which simply aren’t feasible for investors like me (he would often buy up whole blocks of property for development whereas I’d struggle to buy more than one at a time). Similarly, although I may have private investments as part of my portfolio, I don’t have a controlling stake in any of them. Incidentally, I also believe I could offload my private investments far more easily than him due to their size.
For me, the main takeaway from our conversation was simply the level at which he considered his finances. The investments weren’t just his, they were co-owned by all the family. Every decision, every expense, was considered as part of a holistic, long-term plan. He didn’t count every last penny (he didn’t need to), but he certainly had a consistent long-term vision he was working towards.
He also had an enviable approach to selecting opportunities; rather than a purely cash driven incentive, he could choose those opportunities which most appealed. Sometimes, that was taking a position as a non-executive director, other times a silent partnership. He had enough capital to dramatically transform an entire block of property. In short, he could pursue the satisfaction of a job well done rather than a pure salary.