Excessive focus on capital growth can be unwise

A focus on capital growth at the expense of protection has been exposed by the global economic crisis as a significant fault in the investment strategies used by many wealthy individuals. That’s according to, a leading multi-family office advising high net worth individuals and international families.

He said: “The very difficult investment environment of recent times has uncovered underlying strategic faults that include an excessive focus on capital growth, and a consequent over-reliance on leverage. The result for many families has been a lack of liquidity and a diminution in cash and income relative to other assets.”

Van Wyk added that this has led to assets being sold at the wrong time, resulting in lost wealth that is seldom recovered. He said that “wider and deeper” wealth planning was required for high net worth individuals, with risk management having regained its rightful place at the top of the agenda.

The greatest risks have arisen from fundamental issues, like macro changes in the global economy, rather than from investment management decisions. To achieve their goals, complex international families need to be governed like businesses.

“The idea of wealth protection through governance can include the formation of a family council to formalise long-term strategy in a policy document that incorporates risk tolerance and governance procedures,” said van Wyk.

“Core committees with defined responsibilities like investments report to the family council. A calendar of regular formal meetings is agreed to at which business, investment and lifestyle assets are reviewed, as well as governance and policy issues.

“Family assets, liabilities and cash flow projections are scrutinised and formal presentations of major proposals are conducted at meetings of the family council. Decisions are taken and responsibilities allocated.”

Van Wyk said that by adopting the same approach to governance as companies, wealthy families benefit from the virtues of corporate governance including transparency, accountability and fairness.

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