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The family office investment policy and process

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Family offices are private wealth management service entities that cater to the specific needs of families in broad areas with a highly tailored and professional delivery process.

Some popular services are strategic asset allocation, philanthropy management, risk management, accounting, and reporting.

The most individualized service entity is a single family office benefiting only one family. As each family is unique, every single family office responds to particular requirements within a personal framework.

Investments are at the core of single family offices. Whether investment management is performed in-house or outsourced, its success depends on a sound investment strategy.

Surprisingly, some families and their family offices still rely on a standard level of wealth managers' services and model portfolios to develop their investment strategy, leading to expected yet unexceptional results.

We believe that a bespoke approach in line with the family office strategy delivers more. Especially when it's based on broad considerations and designed to embed unique and lasting strategies in your overall family office governance.

The elements of a family office investment strategy


The entire process should clarify the following: the goals, objectives, and vision of your investment strategy and the related investment decision-making and monitoring.

These elements not only guide the investment selection and evaluation in detail. They enable family office risk management in a consistent due diligence and monitoring process for both service providers and investments.

Where should you start?


In our view, shared values, vision, mission, and a family's purpose of wealth are fundamental to every wealth plan, single family office, and wealth management strategy.

If these critical pillars do not harmonize, the best place to start is to review them.

The comprehensive assessment should reflect the purpose of the family's wealth: it can unify the family, empower its members, and impact the community and result in a common understanding of how the family will manage its wealth over generations.

With that, the single family office embeds the family's values and purpose with financial objectives in broad terms. And it's the ideal basis for an individualized investment strategy and to retain control over its execution.

Defining the investment strategy's purpose, goals, and objectives 


With the groundwork performed, the first step is to align the family's purpose of wealth with investments.

Wealth needs to be preserved in the first place to uphold the family's financial status and standard of living.

In contrast, growth ambitions need to be evaluated in light of risk considerations. This should be done for the family wealth as a whole to ensure an appropriate degree of diversification.

It must also consider the family's exposure to the different financial risks such as geographical, currency, and asset class exposure.

The family's background


The family's background has an important impact on the investment strategy's goals and objectives: entrepreneurship, long-term orientation, community interaction, and generational collaboration shape them along with purpose.

Shared values and purpose


Shared values and social responsibility provide additional guidance. In particular, the family business's environmental and social characteristics can set the benchmark for its investment strategy commitments.

The shortcomings of conventional approaches


Conventional investment objective-setting may overlook these factors due to its investment level focus or by considering them only at a later stage of the investment process.

However, for families and their family offices, misaligning the investment strategy and the family's overall purpose and strategy causes a severe risk for their future preservation of wealth.

Therefore they should elaborate on purpose, motivations, and wishes to define the investment process's direction.

A single family office is ideally positioned to overcome these shortcomings of traditional investment positioning and to put wealth in context with the family's unique attributes and requirements.

Building on values and visions


Families focus on building for the future based on their values and vision. Thus, their family office investment strategy should integrate into their overall wealth preservation and growth framework and complete the bigger picture.

Still, clear and tangible financial objectives are required to formalize the investment strategy's long-term purpose and goals.

Risk management


It comes as no surprise that the investment strategy's goals and objectives need to align with the risk management strategy.

Based on the family's knowledge, experience, financial situation, and ability to bear losses, the assessment should cover risk tolerance, exposure to risk factors, and understanding the investment strategy's overall risk.

The relationship between risk and return


In other words, it captures the family's understanding of investment risk and the relationship between risk and return on investments and needs to be assessed for each asset class.

The family's risk attitude


This approach is key to enabling investments in line with the family's attitude to risk. It leads to a family office investment strategy where the family can financially bear the related investment risks consistent with its investment objectives.

It's also crucial to evaluate the impact of financial instruments and transactions at the family office's investment portfolio level.

Further risk considerations


Further considerations, among other factors, include credit and concentration risks, interest risks, inflation, and custody risks.

Extensive stress testing of loss scenarios for both amounts and holding periods to recover will indicate the appropriateness of the defined risk parameters.

Time horizon and liquidity needs


The next step is to specify the investment period. Family office investments will primarily be long-term plans to achieve the desired results, which should be reflected in the minimum investment period.

For planning purposes, liquidity needs should be defined in terms of amounts and frequency of withdrawal outflows.

Asset class guidelines


Clear asset class guidelines are required whether the investment strategy implementation is performed by the single family office or outsourced. Classifications should be described with the expected risk and return characteristics.

Precise definitions


This requires precise definitions of the issuer requirements, capitalization requirements, expected risk rewards, management attributes like value or growth for equity, maturity length, and rating standards of fixed income, and criteria for alternative investments' characteristics.

This step granularly defines the pool of asset class options for inclusion in the portfolio and needs to be specific on exclusions.

A clear assignment to index and peer groups sets the bar for the standard benchmark comparisons in light of the particular risk parameters.

Inclusions, restrictions, and exclusions


The asset class guidelines should be specific on inclusions, restrictions, and exclusions on types of schemes and investments.

The guidelines further set the standard for responsible, sustainable, and impact investing.

They cover its integration into the broader portfolio and asset allocation strategy or define separate sustainable and impact investment management parameters.

Family Office Alternative Investments


According to the UBS Global Family Office Report 2021, family office alternative investments reach a 40% overall portfolio allocation. This is significantly higher than typical private investor portfolios.

Such an institutional approach comes with specific capabilities for due diligence and risk management in a structured investment process.

In-house capacities


If a family office targets the above allocation, we recommend developing dedicated in-house capacities for family office alternative investments and defining core investment options in detail to make a difference.

This requires defining the standards for investment ideas and investment opportunities, due diligence, execution, and successful exits.

It would be best to have absolute clarity about strategies, sectors, geographies, and maturities to succeed in alternatives.

Returns and risks


Furthermore, private equity, direct investments, and venture capital investments occur at different venture stages with varying investment approaches.

A clear understanding of specific return expectations and risks to manage is vital to succeeding in the asset class.

Although alternative investments are more accessible than in the past, family offices compete with institutional players for the best deals. To build a stable deal flow means, among other things, investing in research may be advisable.

Opportunities for family offices


A family office may find opportunities, particularly in the venture capital space where founders appreciate patient capital. Furthermore, their entrepreneurial and strategic experience can often complement the founding team.

Overall, family offices place a specific focus on alternative investments. With an institutional approach in strategy and execution, they achieve strong results and manage risks accordingly. 

Family office asset allocation


Diversification of investments is an integral part of the investment strategy and assessing how they contribute to the overall portfolio risk and return.

Modern Portfolio Theory


Wealth managers widely rely on Modern Portfolio Theory concepts to evaluate and optimize individual investments' potential risk and reward in the portfolio context.

The model has its critics due to its downsides in forecasting and emphasizing a single period rather than multiple decision-making periods.



Still, diversification and efficiency remain important, and model portfolios can help define minimum weight, target weight, and maximum weight for each asset class.

It's more about goals and diversification than optimizing investments, and alternative investments can significantly diversify the portfolio and increase efficiency.

The specific asset allocation should ultimately lead to portfolio construction and diversification that targets the defined risk management parameters.

The importance of asset allocation


Asset allocation is a crucial success element of the family office investment strategy.

With typically high strategic allocations to alternatives and the correlated risks, each family office investment coherently needs to fit into the allocation and risk management framework.

This requires an institutional approach with the ability to control risks.

Long-term views and staying power


Family offices' long-term views enable the combination of the ability to give up liquidity and the staying power necessary for high-performance family office alternative investments allocations.

Still, family offices take a dynamic approach in their tactical asset allocation to navigate stress events and volatility.

With the outlook of a further increase in alternative investments due to low interest rates, family offices will continue to enhance their due diligence and risk management capabilities and focus on institutional-grade asset allocation.  

Investment manager selection and monitoring


Your single family office should establish clear guidelines for investment manager selection and monitoring.

Each asset class may require different types of investment managers and specific performance parameters and objectives.

Due diligence process


The manager selection due diligence process should include the manager's regulatory status, correlation to the asset class, performance against its peer group, risk-adjusted performance, minimum track record, assets under management, expense ratio, fees, and team stability.

Regular reporting and performance reviews


Regular investment manager reporting and performance reviews are part of the ongoing monitoring process to ensure that the selected investment manager performs according to the selection due diligence criteria.

Monitoring process


Deviations from the investment strategy guidelines, organizational changes, and regulatory procedures need to be explicitly monitored.

If performance is not within the defined parameters, there should be a specific monitoring process, including the monitoring period and criteria for replacing the investment manager.

Controlling, review and monitoring of the investment strategy


Controlling and accounting for the investment expenses will allow for assessing all investment strategy costs and evaluating their appropriateness.

The investment strategy needs to be reviewed regularly in light of changes in the objectives and risk profile.

If the objectives are not relevant or feasible anymore, the investment strategy needs to be adjusted.

Clarity over risks and returns and an adequate understanding of the relationship between them will determine whether the investment strategy achieves its purpose.

Interim summary


The investment strategy is at the core of a single family office to ensure its alignment with the family's purpose of wealth.

Ultimately, the financial objectives of the family office investment framework need to coherently complement the family's values and purpose of wealth in the family office governance framework.

There is no standard template for this, and we do not recommend following a common approach that may not be feasible for multi-generational wealth preservation and growth.

In our experience, a tailored system with external experts' assistance delivers the best results for a disciplined and structured family office investment process.

The target for investment-related decision-making and evaluation is the alignment of goals, objectives, and the strategy's vision with consistent risk parameters in a diversified portfolio.

The single family office investment committee


Unlike institutional players, not all family offices do have an investment committee. Since a strategy is only as good as its execution in this post, we will now guide you through the process of building a family office investment committee.

What is a family office investment committee?


We keep the answer short since, for some, this may be basics:

The family office investment committee is the guardian of the family's wealth and executes and implements the investment strategy in the family's best interest, avoiding and managing conflicts of interests.

It monitors investment options to diversify and manage risks in a prudent and disciplined investment process contributing to the family office risk management framework. 

Do you need an investment committee?


This is the most critical question to ask. With a solid and precise investment strategy, you may want to fully outsource execution, monitoring, and control to external professionals.

In-house structures require a dedicated framework that comes at a cost.



Independent service providers with no affiliation to wealth and investment managers offer cost-efficient solutions replicating the family office investment committee's functions and avoiding conflicts of interest.

Next to their independence, you should focus on their investment manager selection process and their reporting quality.

Regular reporting


Regular reports will provide you and your family office with the required objective operational and financial information to evaluate the results in light of the investment strategy's objectives.

Such data should lead to clear findings on cost, performance, and strategy alignment across asset classes and managers.

Depending on the strategy's complexity level, the outsourcing model can deliver control and the basis for informed decision-making at attractive costs.

In-house expertise


Suppose your single family office has specific asset class expertise, e.g., alternative investments, and the investment strategy is rather complex due to the particular asset class exposure. 

In that case, complete outsourcing may not be the ideal solution to tackle such niche requirements.

Instead, you can consider a governance model embedded in the single family office but with a mix of in-house and external committee members.

Finally, the investment committee can comprise only internal members, with the most sophisticated option being a fund model where your own legal entity manages assets in an institutional governance framework.

Gap analysis


This first part of the process requires a detailed analysis of the gaps to fill with the investment committee and evaluating the feasible solutions' costs and benefits.

The analysis outcome may reveal shortfalls in investment selection and monitoring, continuity of capabilities, or risk management.

The suitable investment committee model can then be defined to implement the investment strategy's objectives based on those findings.

The role of the family office investment committee


You should follow one main principle for all potential models: The investment committee is not an investment portfolio manager but interprets, directs, and consistently oversees the investment strategy's execution.

Core duties


With that, it ensures the diversification of the portfolio within the set risk and return parameters.

Its core duty is the investment manager and advisor selection and conducting all necessary controls and reviews of strategy alignment, performance, and costs.

Separating execution and control


Only a strict separation of investment management and oversight will enable disciplined long-term strategy execution.

If investment management is performed in-house to a certain extent, you should treat that part like all other external investment-related services to assess the overall investment options' congruity.

Aligning investments with values and purpose


A family office strategy should reflect the family's values, vision, and purpose.

The investment committee in its investment-related decision-making and evaluation needs to align goals, objectives, and the strategy's vision with consistent risk parameters in a diversified portfolio.

The underlying investment process management includes a regular assessment of the investment strategy and eventual recommendations to adjust risk and opportunity specifications.

Governance framework


The investment committee governance framework is tailored to the family office's needs and the complexity and size of assets under management.

While there's no standard number for committee members, an odd number is helpful for decision-making.

There can be voting and non-voting as well as permanent and non-permanent members.

Next to roles, behavior, and expectations, committee members should have clear guidance on the decision-making process and documentation requirements.

The governance framework has a focus on the duties and processes of the investment committee.

It's comparable to a code of conduct to ensure loyalty, objectivity, and acting in the family's best interest, reasonable costs, monitoring and control.

It avoids and manages conflicts of interest, and prevents unlawful or prohibited transactions.

Policies then govern the process and procedures, including formal requirements for investment manager selection, monitoring, and controlling.

Typical pitfalls


In our experience, we see two typical pitfalls here: family dominance and technical overload.

Family dominance


An investment committee requires the delegated authority to execute the investment strategy.

While the family should have an active interest in the committee's activities, it can be tricky with family members taking formal roles. It may impair the other members' objectivity and even dilute potential liabilities if things go wrong.

The family office CEO is often a sound alternative with investment skills to perform such a mandate and ensure family representation.

If you deem a family member's participation essential, a non-voting membership could solve the issue.

Technical overload


The governance framework should be concise and clear with policies and processes enabling the investment committee's compliance with its objectives and duties rather than over-complicate execution and causing formality deadlocks.

Not all processes and procedures may lead to the perfect result from day one, and you should allow some room for improvement.

The family office's legal or compliance officer can assist as a non-voting member in shaping the operational governance framework.

The target is a straightforward process framework that is strictly followed for consistent results.

Member selection


The investment committee members don't need to be investment professionals only, although a thorough understanding of financial markets is beneficial.



The two most essential requirements are the willingness to take an objective position and to put the family's interest in the first place to protect its assets.

As mentioned, the family office CEO, usually experienced in financial investments, can play a crucial role and chair the committee.

Trusted advisors


Trusted advisors can be appointed as non-voting members for an additional level of control.

The investment committee members should acknowledge their duties, responsibilities, and potential liabilities in service agreements.

Objective criteria


Defining objective criteria for the committee composition and appointment avoids key-person dependencies, facilitates succession planning, and ensures ongoing operation.

Investment committee meetings


The recurrence of the investment committee meeting depends on the individual family office situation, but a minimum of quarterly gatherings is advisable. More complex portfolios may require monthly assessments.

The investment committee requires high-quality data and information to assess the recent results against benchmarks and strategy objectives.

The family office's role


To this end, the family office should perform detailed data processing.

It provides performance data, investment manager changes, background information, historical data, and any other information needed for the investment committee's judgment on the specific strategy execution, performance, quality, and services costs.

Data processing


The relevant investment strategy's parameters determine the amount and granularity of information to perform the ongoing review.

The family office ensures data consistency for the assessment of strategy benchmarks against actual results.

They are critical for the investment committee's decision-making based on correct, adequate, and complete information.

It will document all its findings and actions and report to the family its decisions and recommendations regularly.

Building an audit file


With the documentation of all relevant committee activities along the investment process, the family office builds a comprehensive audit file for independent reviews of process management.

Such information will allow expert third parties to evaluate the investment committee's policy and process adherence and the investment strategy implementation, monitoring, and control quality. 

Let's recap on the family office investment strategy and committee


Strategy is key


In our view, the decisive element in the overall family office investment framework is the investment strategy. We recommend a particular focus on it and on family office alternative investments before building the implementation model.

The investment committee's mandate


The family office investment committee's mandate is to implement the investment strategy and monitor and control its execution.

It ensures consistency with the objectives and goals, risk management parameters, asset class guidelines, asset allocation, investment manager selection principles, and a structured review and control process.

Depending on the individual circumstances, its functions can be outsourced entirely, although a robust and disciplined investment process remains indispensable.

The family office's role


For the success of an in-house investment committee, the family office plays a crucial role in data processing.

Especially when it comes to considering all relevant factors such as returns and benchmarks, asset allocation adherence, cost and risk limits, and any other information required to monitor the strategy execution.

Monitoring the investment strategy's execution


The investment committee is a guardian of the family's wealth and acts in its best interest, avoiding and managing conflicts of interests.

The investment strategy's purpose and objectives guide all of its activities.

Regular and comprehensive reports to the family should also include the investment committee's opinion on the strategy's adequacy to meet the family's needs and recommend eventual improvements.

Finally, independent expert third parties reviews provide an additional level of control and assurance for the family.

Updated 24-11-2021

Contact us to schedule a free consultation to learn more about getting the most value from your individualized family office solution.

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