We talk to a third-gen. family member of a Zurich and Tel Aviv wealth manager and author about the approach he favors for risk and wealth protection.
Family office consultant and regular contributor Joe Reilly speaks about risk-taking family offices and how to think about long-term wealth with Philippe J Weil, third generation family member, Zurich and Tel Aviv family wealth manager and author of Woes of the Rich, Seeing Beyond the Money.
The recent controversy about New York-based Archegos, which was structured as a family office and imploded after wrong-way bets in the equity market, raised alarms among some regulators, and prompted pushback from the family offices industry. More broadly, the saga puts a light on the extent of risk-taking that family offices ought to be involved in. (A few hedge fund tycoons, such as George Soros and Steve Cohen, have morphed their firms into family offices over the past decade, albeit for different reasons. (See here for a roundup.)
Joe Reilly: As we are doing this interview, a so-called
family office is in the headlines after blowing up. Do you
consider something like Archegos a family office?
PJW: The job of the family office is to look after the wealth of the family, not only after the assets. I am a steward of wealth rather than a wealth manager, and as Jay Hughes would say, I am looking after the intellectual, spiritual, social and human capital as well as the financial capital. As for the financial capital, our families have a different time horizon than a professional investment manager. We plan 50 to 100 years ahead, so to speak. So if I plan for 100 years ahead, I don't need to have leverage up to the roof, and I don't need to have financial engineering like hedge funds do, because I don't need the risk. I can strive to beat inflation and everything that I make above that is already a nice thing to happen. Once the family is wealthy, one must switch the strategy from “getting rich” to “staying rich”. Preservation is more important than making an extra buck.
What would you tell a client from the financial world who
wants to be very aggressive?
If he would come to me, I would give him a gentle warning and say, listen, it is very nice that you invest in high risk, and you should continue to invest because that's what you know how to do best. But maybe put some money aside, invest in a long-term investment. And by the way, have you spoken to your children about the money? You sold your company for X million dollars, and people talk. So you had better prepare yourself for the talk about money with your family. I would address the other issues: the impact of sudden money, the four capitals, the meaning of wealth and philanthropy as well.
There have been tremendous fortunes made in Israel in the
technology industry. Do you think they have a different attitude
There is a great deal of sudden money in hi-tech industry indeed. A company is started and within two or three years they exit, and the founders find themselves with tens of millions personally. That never happened in the past.
We used to think that making money has to do with lots of sweating and working hard and long. Nowadays, that's not true. Of course, if you create a hi-tech company, you most probably had some very hard days, but you're sitting in front of a computer writing code for a few years and developing new ideas. Then you sell the company for millions of dollars.
Interestingly enough, these Millennials are not interested in money. They all start at the same university or the same army unit in Israel, like the famous cyber or intelligence units, and they all start a startup either together or at about the same time. They compete to be the first to exit and not how much money they make - it is about who is the first to sell the startup to Yahoo! or Google, or Facebook or to do an IPO. That's their challenge. They don't necessarily change their lifestyle. At some point they will have to start managing their own money. In ten years they will ask how to write a last will, and how to prepare the next generation for the money. But it's only starting now. Just last week I had a conversation with a woman, a partner in a company that was bought by a SPAC for a lot of money. She told me that my book helped her understand the complexity beyond the money and the financial capital. She understood that she has to prepare herself and the family for this sudden blessing. As for the wealth creators of this generation, money doesn't really impress them unless, of course, they start losing it.
Lately impact investing is also a hot topic with the rising generation of wealth owners – all along the spectrum, it does not matter if it is inherited wealth or new money!