The begin­ning of our deve­lo­p­ment into an owner-mana­ged family office (FO) corre­sponds to what must have been a very typi­cal initial situa­tion: the acti­vi­ties of our group, which had until then been almost exclu­si­vely proprie­tary, were signi­fi­cantly redu­ced more than 20 years ago by our with­dra­wal from the elec­tri­cal whole­sale busi­ness, and a medium-sized group of compa­nies with 750 employees became an entre­pre­neu­rial asset manage­ment company with around 150 employees today. The break at that time was used to drive diver­si­fi­ca­tion into other asset clas­ses, but without comple­tely aban­do­ning the proprie­tary area, which explains the compa­ra­tively high head­count for a family office. Thus, to date, our port­fo­lio includes two medium-sized compa­nies in the field of cate­ring whole­sale and as a special service provi­der in the field of metal proces­sing. Over­all, howe­ver, our current setup has a clear asset manage­ment orien­ta­tion, which is now mana­ged by two repre­sen­ta­ti­ves of the foun­ding family in the third gene­ra­tion. Our focus and empha­sis is based on the needs and oppor­tu­ni­ties of the time. Our current over­all port­fo­lio ther­e­fore has a clear focus on real estate — not least due to the inte­rest rate deve­lo­p­ment of the past 10 years.

Our current struc­ture is thus certainly more hete­ro­ge­neous than that of other FOs in that it inte­gra­tes proprie­tary acti­vi­ties into its asset-mana­ging struc­ture. This list shows oppor­tu­ni­ties and risks in equal measure. Ideally, we succeed in combi­ning the best of both worlds: In the asset manage­ment area, we accept that we are no longer neces­s­a­rily in the driver’s seat, but without comple­tely aban­do­ning our entre­pre­neu­rial spirit. We can ther­e­fore react more quickly to special situa­tions and exploit oppor­tu­ni­ties more flexi­bly than more heavily regu­la­ted insti­tu­tio­nal market parti­ci­pants. On the other hand, we main­tain a more criti­cal view of our proprie­tary acti­vi­ties than others, in the aware­ness that they are merely one of seve­ral buil­ding blocks of the over­all port­fo­lio, which has to prove itself in a sober compa­ri­son with other areas and asset classes.

Making the most of these expan­ded oppor­tu­ni­ties poses parti­cu­lar chal­lenges for the manage­ment of such a diverse port­fo­lio. The first ques­tion is whether it makes sense for the owner family to shoulder these chal­lenges them­sel­ves or whether exter­nal service provi­ders should be used. This ques­tion can only be answe­red indi­vi­du­ally and on the speci­fic case. As is well known, not every full-bloo­ded entre­pre­neur is auto­ma­ti­cally a good asset mana­ger, just as not every good consul­tant auto­ma­ti­cally succeeds as an entre­pre­neur. The basic prere­qui­site for an owner-mana­ged struc­ture is, of course, that the requi­red mini­mum level of econo­mic, tax and legal know-how can be provi­ded by the family share­hol­ders them­sel­ves — and, in case of doubt, seve­ral times and over seve­ral gene­ra­ti­ons. Every family is ther­e­fore well advi­sed to treat its talents with care and to take an inte­rest in family busi­ness issues at an early stage. Conver­sely, i.e., if inter­nal “human resour­ces” are no longer available in the long term, this gives rise to an expli­cit mandate to prepare admi­nis­tra­tive struc­tures for the invol­vement of third parties.

The perso­nal suita­bi­lity of indi­vi­dual family repre­sen­ta­ti­ves is of little use, howe­ver, unless there is also a corre­spon­ding level of trust in the acting persons on the part of the other share­hol­ders. It is only in the combi­na­tion of these two prere­qui­si­tes that family ties prove to be the more relia­ble and successful “skin in the game” than purely finan­cial invol­vement by exter­nal third parties can bring about. Then the much-vaun­ted hidden reser­ves of family busi­ness struc­tures can actually be leveraged.

In the manage­ment of the FO, “owner-mana­ged” must by no means be misun­ders­tood as “do ever­y­thing yours­elf”. Rather, the inter­face between the origi­nal tasks of the active owners on the one hand and extern­ally brought in know-how on the other must be consciously defi­ned. This is because the broa­de­ning of the invest­ment hori­zon inevi­ta­bly increa­ses the number of play­ing fields to be played in paral­lel, which calls for a “decen­tra­liza­tion” of the scope of infor­ma­tion to be proces­sed. Consis­tent “time manage­ment” proves to be the first cardi­nal virtue of “asset manage­ment”, which requi­res constant scru­tiny and, if neces­sary, the imple­men­ta­tion of a new stra­tegy. Adjus­ting the current prio­ri­ties in each case requi­res. If this does not succeed, the rand­om­ness of event-driven day-to-day busi­ness beco­mes the real driver of invest­ment decis­i­ons and thus the oppo­site of stra­te­gic asset allo­ca­tion. Because, of course, the smal­ler size also has disad­van­ta­ges: Owner-mana­ged FOs have to find answers to the incre­asingly deman­ding macro- and microe­co­no­mic ques­ti­ons that have to be taken into account in the context of invest­ment decis­i­ons just as much as insti­tu­tio­nal capi­tal coll­ec­tion agen­cies with their considera­ble resour­ces in rese­arch. The intel­li­gent and effec­tive use of exter­nal sources of infor­ma­tion while at the same time taking the cost side into account is thus also part of the core of the task.

If all this succeeds, there is a chance to “convert” the advan­ta­ges of a bearer struc­ture into an upside in asset perfor­mance in the lite­ral sense. Fast decis­ion-making proces­ses, less regu­la­tion, trust on the part of the stake­hol­ders, and a high level of iden­ti­fi­ca­tion on the part of the prin­ci­pals also provide a suita­ble setting for thin­king out of the box. This is parti­cu­larly useful in the asset manage­ment indus­try with its latent tendency towards “pseudo-acade­miza­tion”. The topic of ESG, whose deve­lo­p­ment and imple­men­ta­tion must be viewed criti­cally from our point of view, is a current exam­ple of the need for intellec­tual independence.

Like proba­bly most market parti­ci­pants, we perceive a perpe­tua­ting insta­bi­lity in the exter­nal envi­ron­ment, which does not make the task of preser­ving and, ideally, incre­asing wealth any easier. After all, the ability to plan is a funda­men­tal element of any asset management.

But if this insta­bi­lity repres­ents the new “normal,” we must accept this and thus also acknow­ledge that this desta­bi­liza­tion ulti­m­ately repres­ents a flip side of globa­liza­tion, from which we have all bene­fi­ted in the past and will hopefully bene­fit in the future. Terms such as “disrup­tive” and various “new theo­ries” are more likely to describe the dilemma than to present possi­ble solu­ti­ons. The adjus­t­ment of risk manage­ment in the sense of an even more careful diver­si­fi­ca­tion and combi­na­tion of assets that are as uncor­re­la­ted as possi­ble remains the means of choice when it is incre­asingly neces­sary to operate on sight. The looming infla­tion is doing its part to keep the task chal­len­ging. Here, it will be important not to rush head­long into real assets, but to main­tain suffi­ci­ent liqui­dity despite the pain­ful deva­lua­tion of money in order to meet the need for hedging as well as to take advan­tage of oppor­tu­ni­ties in a more diffi­cult econo­mic environment.
(re-)financing envi­ron­ment in the short term. And in the end, despite ever­y­thing, it is important to keep an open mind for new things, even in a constantly chan­ging environment.

About Florian Schmitt
Florian Schmitt worked as a lawyer and tax advi­sor in Munich for 13 years, the last seven of which he spent with the law firm Braun Leber­fin­ger Ludwig, focu­sing on advi­sing entre­pre­neu­rial fami­lies. Today, as third-gene­ra­tion spokes­man of the Board of Manage­ment, he heads toge­ther with his cousin the holding company in which the family’s entre­pre­neu­rial acti­vi­ties are pooled. fschmitt@sldv.de