Lessons learned at the LBS Family Office Conference 2023

The earlier speaker, chief executive of his family’s office, said that the challenge for asset managers is to show that they could deliver and that they can have impact. He said the opportunity for family offices was to make a portfolio exciting and interesting. “The degree of intellectual engagement by the family is critical.”

Alongside the notion of impact investing is the question of outright charitable donations. Family offices have long abutted the world of philanthropic giving, and the whole subject came under the spotlight at the conference. One female speaker, working in the field of prison philanthropy explained that when someone went into prison, she wanted them to emerge in better shape, adding that, when she started, philanthropy was a very male-dominated field.

Family offices are expected to take a disciplined approach to philanthropy instead of simply handing out money. An impact investor, referring to philanthropy, added: “How cool and rewarding it is to do this stuff?” he said. “We need to shout out what we do.” There is no need to have tension between investment and philanthropy. The test for both should be whether or not the family office is doing good.

Is entrepreneurship a threat?

Until she read about it in The Sunday Times Rich List, one member of the audience had no idea how much her parents were worth. She now leads the charitable foundation that they established. Families need to be careful how they treat the next generation, especially when successful parents didn’t grow up with a lot of money. Too much money is probably not a good thing for children. Ideally, children should go to work in the morning and have a sense of purpose.

In terms of investment strategy, family offices should distinguish between areas where specialist knowledge would be an advantage, and areas where they should be content to take a general approach and move along with the market. As a result, many family offices have become more sophisticated, and are no longer simply concerned with allocating capital.

Professor Vasvari noted: “All serious family offices invest in private equity, but there is a trend towards them undertaking a lot of investments in the private market themselves.”

At what is perhaps the other end of the spectrum is the question of whether family offices can retain the entrepreneurial energy that created the family assets in the first place. Indeed, could entrepreneurship be a threat to the successful functioning of a family office?

Do entrepreneurs create family businesses?

Rupert Merson, Adjunct Professor of Strategy and Entrepreneurship at London Business School, addressed these and other issues in a special session of the conference. His starting point was that entrepreneurs don’t create family businesses; they create businesses that may, in time, become family businesses.

Furthermore, as businesses grow and mature, entrepreneurs may not be the best people to run them. The key skills of the entrepreneur relate to identifying an opportunity and taking the risks associated with creating a business to meet the opportunity – along with building a team, tolerating uncertainty and ambiguity, persistently problem-solving – and dealing with failure, he said. One member of the audience noted, “The point about entrepreneurs is that when everyone else is going left, we go right”.

A slide listed non-entrepreneurial attitudes, including a belief in the person’s invulnerability, anti-authoritarian streak, perfectionism, know-all behaviour and macho attitudes. Professor Merson added that perfectionism can be dangerous for entrepreneurs. They should simply get out there and do it.

Professor Merson said that such attitudes were likely to change as the business grows and its relationship with the family evolves. The first generation was likely to focus on entrepreneurship; later generations might address issues such as diversification and the codification of corporate culture and values. Even the most realistic entrepreneur may have difficulty adjusting to the role change demanded by business growth. What makes a good entrepreneur does not necessarily make a good CEO, he said.

A partial answer, Rupert said, is “intrapreneurship”, enterprising behaviour in the context of a larger organisation, one example of which would be corporate venturing.

From entrepreneurship to diversity

Professor Merson recalled an entrepreneur who told him that what his business needed was someone else like himself. Professor Merson noted that an assertion such as this failed to acknowledge the importance of diversity – including cognitive diversity – in the senior team as the business grows and matures, a point also made elsewhere in the conference. 

Teams composed of similar people may feel they work better, but good decisions are often a product of managed conflict which is more likely to be achieved by a team with diverse perspectives. Lack of cognitive diversity leads to echo-chamber phenomenon and diminishing rewards.

One attendee said it was difficult to recruit to family offices as family offices are considered as providing “less sexy” opportunities for ambitious and capable staff. Another agreed and added that, in terms of getting good managers, family offices are often seen as a bit dull.

Recruiting the next generation

With regard to family members joining the family business or family office, one partner and the head of philanthropy at a well-known family business, said the next generation should focus on developing the best possible career for themselves without worrying too much about whether or not it will qualify them for the family business or office. This way they will give themselves the best chance of ensuring things turn out well for themselves – and may actually increase their chances of being of interest to the family business. “But don’t work on the assumption that you will definitely join the business.”

The chief executive of an impact investment firm summed up: “Family culture: you can chart it, you can plan it, you can scheme it – but it’s already there.” He added: “But the common strand in everything we do is entrepreneurship.”

The inaugural Family Office Conference brought together principals and senior executives in a confidential setting without interference from service providers or entities with commercial interests. Participants were exposed to leading academic and practitioner insights and engaged in joint learning and network building. The conference, sponsored by Schroders , a specialist in Private Assets and Family Office services, covered a wide array of timely topics relevant to business families from addressing their positioning in today's society, family dynamics and governance to investment related themes. Register your interest for next year’s event.

This article is provided by the Institute of Entrepreneurship and Private Capital, to receive our bi-monthly DeBrief newsletter, sign up here.