Trade-offs exist everywhere and always. What are you willing to sacrifice?
Let’s begin with a cheers:
Here’s to making 2023 fulfilling, fun and also… well… in reflecting on 2022 and how trade-offs exist everywhere and always, cheers to 2023 being enough for you however it unfolds. Some goals should be hard enough that they may not happen. Some trade-offs are properly sacrificed for other priorities and goals. Bring your contentment perspective to 2023 along with your ambition.
“To get to a specific, clear and unique investment strategy, the family has to be able to articulate their purposes for investing. Far more specifically than their risk adjusted return tolerances. So investment policy statements are a fun and important governance tool to work on and get right.”
Let’s find perspective together on how IPSs can grow your family wealth.
FW = R (HC + RC)
Your family wealth grows fastest when you consider ways that your resources can amplify your human and relational capital pools.
Investment Policy Statements: Before running a wealth management firm, my interaction with these documents was limited to a quick review with an investment professional and the occasional deeper dive on behalf of a client.
I never considered at the time that families could create their own investment policy statements. I also was unaware that the document could strengthen family cultures and that unlike the documents produced by the wealth management industry to CYA, there was not any specific rules to follow or legal risks to mitigate.
RC – Families’ relational capital, it’s culture
An IPS is a document that families can work on: This document is a living document, amended whenever your family sees fit to improve the terms and guiding principles under which financial resources are deployed.
There are many topics an IPS can discuss, but the most important lens in my opinion is how your family’s investment philosophy influences your family’s collective well-being.
A policy to align financial resource deployment with personal and collective well-being.
HC – human capital and personal development
How can your investment decisions positively influence your day-to-day lives?
As a document produced with the mindset that it can amplify a family’s fulfillment and success, a document that can meaningfully guide a family’s seven-generation journey, the focus of the IPS changes significantly from the IPS produced by conventional investment management.
One key policy requires prioritization of family investment interests. Identifying specific areas that family members find particularly interesting is a helpful initiative.
Have you considered for yourself: do you find any particular investments compelling and worthy of more of your time, attention and investment dollars?
Here’s a simple example of the type of policy you could include:
We value investing in industries that family members find particularly compelling for long-term value accretion.
A minimum of 10% and a maximum of 80% of the value of our financial capital should be classified by the family as being in “Well-Being Additive” industries (such industries agreed upon annually by voting family members.
A policy like this requires that the family stay sharp on topics of interest. Your family will benefit in multiple ways from this focus:
Firstly is the potential for outsized financial returns. The investment in a specific thesis gaining concentration in the portfolio may outperform as Peter Thiel describes:
“You can expect the future to take a definite form or you can treat it as hazily uncertain. If you treat the future as something definite, it makes sense to understand it in advance and to work to shape it. But if you expect an indefinite future ruled by randomness, you’ll give up on trying to master it.”
“The most common answer to the question of future value is a diversified portfolio: “Don’t put all your eggs in one basket,” everyone has been told. As we said, even the best venture investors have a portfolio, but investors who understand the power law make as few investments as possible.”
Secondly and more importantly, the focus will likely result in finding areas of potential vocation and personal fulfillment. Areas compelling enough that you will learn and grow, ultimately gaining expertise.
Role modeling the expertise and increased agency will also inspire other family members. While improving your own well-being.
So be curious! Join new communities and bring your beginner’s mindset, and you just might find a fulfilling new focus.
R – resources, financial capital
An investment focus need not result in creating a startup or adding significant risk. For example, an interest in the future of energy could begin with an investment in a clean energy ETF and then possibly advance to allocating to a private equity team focused on a specific area (like power storage for a clean energy example) as you meet the top teams and get curious.
If the interest is so compelling that those risky startups enter the portfolio (like Katal Energy did for me!) then the Investment Policy Statement should consider how to manage those concentration risks while also identifying potential non-financial goals of the investment.
This topic would then become a cross-over policy between the IPS and my favourite policy tool, the Family Bank. You can read the third in my series on the topic at CanadianFamilyOffices.com.
Here’s to a 2023 where we continue to sharpen our unique answer to the tricky question “so what is all this money actually good for?”
To the journey,
I’m excited to learn about Japan’s 72 micro-seasons, lead through the eyes of a wonderful writer and the person that reintroduced me to nihilism (some very interesting wisdom to distill into family wealth dynamics from nihilism) Lucian James. If you want a philosophy that attunes your attention to valuing your day to day more, I expect this 72 season focus to be enjoyable and valuable!
Find out more here.