Evolving the family office proposition

Over time, the simple family business model grows beyond a single physical location where members of a family work together and may blossom into a financial behemoth with multiple entities, investment strategies and a complex hierarchy of human capital that extends across generations and beyond the realms of familial ties. This is when the need for a family office — in essence, a private wealth management firm that oversees issues as prosaic as administrative tasks to more complex matters of succession planning, investment management and financial planning, may become imperative.

SMU Master of Science in Wealth Management (MWM) graduate Luca Colella is the second-generation scion of family business Colella Holding, which has a rich history in real estate, as well as the food and beverage industries in Italy. The executive vice-president and chief financial officer of the company began his career by working in the real estate division of his family's group. Over the years, he has managed all stages of the property management value chain, and completed numerous acquisitions, restoration, renovation and disposal of important assets. Today, the qualified family officer is also head of investments in equities and bonds.

“The need to create a real family office arose in 2018, when we started preparing our group for the intergenerational transition within our family,” recalls Luca.

“It was an extremely delicate moment that was planned with expert consultants in the sector, and culminated in the creation of the Charter of Values, a text that contains the founding values ​​of our family, as well as the rules to follow with regards to the division of roles and responsibilities.”

When families examine their legacy, they may often focus on instruments to ensure that their financial wealth remains intact. But another crucial component of sustainability is to also understand and evolve the intentions of the founders’ mission and values. Hence, part of the family office’s scope of duties is to craft a framework of values and beliefs that can be shared by members of the family and embraced by future generations.

“The main goal is to preserve our heritage from generation to generation, by ensuring that our investments are transformed into permanent capital,” adds Luca.

“This can only happen through forward-looking management in line with our values, to avoid the unplanned dispersion of the family wealth.”

Growing a wealth of knowledge

To the uninitiated, being part of a thriving family business might seem like an automatic waiver from the proverbial paper chase. However, next-generation business leaders may benefit from an education trajectory that enables them to gain awareness of fundamental issues facing family-owned businesses of today, and spot unrealised opportunities when they take over the reins from their predecessors.

“When I was admitted into the MWM programme, I decided to accept this new challenge as I knew it was pivotal to nurture my leadership and listening skills, as well as my knowledge of South-East Asia,” shares Luca, who graduated with a bachelor’s degree in economics and business management.

“I believe that a specialisation in wealth management was the best route to gaining a 360-degree view of any topic related to the world of economics and finance.”

Through the MWM programme, he realised how essential it was to develop diversified investment strategies and use different asset classes that can mitigate the various types of risks — especially in a climate as volatile as the current economy. In-depth knowledge of subjects such as macroeconomics, corporate finance, private equity and structured finance, notes Luca, allows for a much broader overview of an investment strategy for his family office.

“The programme’s strongest asset, of course, lies in the MWM faculty, made up of extremely well-trained professors who are willing to support and help us students, day after day — which is a huge competitive advantage over other similar programmes.”

Navigating the unknown

As with all other enterprises around the world, the resilience of family businesses was also tested by the effects of Covid-19. According to a KPMG report on how the pandemic impacted family businesses globally, 83 per cent experienced a decline in revenue, with most families prioritising economic goals for survival.

However, the crisis has also spurred some family-owned organisations to re-evaluate and cement their values and ensure that the overarching vision for their legacy remains intact. Faced with greater uncertainties, family offices must re-examine their processes and improve governance methods, as they also decide on the right asset allocation to steer them through volatility. Consequently, there has been a rise in interest from family offices in creating social and environmental impact through their investments, with 86 per cent of high-net-worth individuals, family offices and foundations believing their private capital will be “essential” in addressing climate change.

“The greatest difficulties arising from the pandemic are linked to the search of new paradigms for investments,” reveals Luca.

“Nothing can be taken for granted anymore: reinventing investment processes that weigh the probabilities and risks of new health, natural, energy and climate-related disasters is essential if the main objective of a family office is the preservation of the family assets over the very long term.”

As such, adopting a holistic approach to wealth planning and investment management is essential for any private banker, relationship manager or family officer, adds Luca. And besides the importance of wealth management, another role of the family office is that of contingency planning, whereby the needs of the family are met by capable family members and suitable external advisors. Family officers should also safeguard the family’s long-term prospects through comprehensive succession and contingency strategies.

“My sister, my brother, and I represent the second generation of our family and we are aware of how the difficulties will most likely increase from generation to generation,” shares Luca.

“For example, if some members of the family decide not to partake in the business, it is necessary to establish the criteria for a correct valuation of assets and ways to monetise a part of the assets that will belong to the family member who will no longer want to play an active role within the company.”

Given the growing global dispersion of wealth, the family office also must relook existing structures and put in place strategies for asset management across borders and manage the needs of an extended family across the world. Gaining international exposure is therefore a useful asset for wealth management specialists in the family office space, as it provides the ability for being agile when the need arises.

“Singapore is the gateway to investing in Asia, thanks to efficient and effective financial regulation that allows start-ups, small and medium-sized companies, as well as large corporations to develop new business models,” says Luca.

“I was drawn to the incredible diversity of backgrounds and cultures of SMU’s students and faculty. Today, I am proud to say that I completed this journey with a greater awareness of myself and my potential.”