No matter how much money you have, if you do nothing with them, there will be fewer of them. How much? If you count only inflation, approximately on 40% behind 10 years. And if you add costs? The more a person has, the more he spends. We rarely spend less than 2% his condition, more often the current expenses of a wealthy family are equal to 3-4% of the capital. Including costs for 20 years of your money will remain ... 16%. And the losses from failed projects, debts not returned by friends, charity, presents?
While the main business brings super profits, you don't have to think about it. But the moment comes, when investment management becomes central. Solving it, usually, starts with the creation of a family office - a company, who should successfully invest the funds of a billionaire thinking about the future. Many family offices are built as "subsistence farming": they are designed to perform all functions from concierge service to portfolio management (the habit of controlling everything comes from the main business). As a result, a narrow range of products, poor results, "strange" speculation with currency and gold, investment in algorithms, leveraged trading strategies.
Many problems arise when choosing investment areas.. Liquid markets are out of fashion today, and family offices are looking for individual "interesting stories". In Russia, it is customary to trust only friends. Oligarchs usually have two types of friends: some ask for a loan, others offer business. Hence the two frequent investment directions for family offices.
Private debt seems like a great investment: borrower sign, high rate, refund is secured by pledges. At first it seems, that this is a way to earn 15-20% risk-free in foreign currency! But loans are usually taken for a risky business., and family offices do not have credit departments for the correct analysis of the borrower. Part of credits (and rather big) prolonged and non-refundable. Collaterals turn out to be overvalued and illiquid, it is more difficult to sell them, how to get the money back. You can pick up a business, but what's the use, if it does not generate income?
Business "with friends" is rarely good and only if the friend is a professional in business. But over the years, the billionaire's friends turn out to be scientists (graduated from the institute together), Doctors (healed, made friends), pretty girls (something was or was not, it's a pity…), athletes, poets, artists, jewelers, etc.. d. And the family office invests in a large clinic - for a doctor friend; to the genetic engineering laboratory - for a biologist friend; in several beauty salons, advertising and travel agencies, shops - for girlfriends, advertising agent, travel agent; to the sports club, poetry salon, gallery, gold factory ... With rare exceptions, these businesses are doomed, since their creators are anyone, but not entrepreneurs. Scenario, usually, one: initial investment, total failure to reach targets, demand for new money, failure again, quarrel with a friend, partner demonstratively leaves, attempts to sell a losing business.
If not with friends and not in debt, then definitely into something promising and interesting. Family offices invest massively in ventures, and in the most "revolutionary" and at the earliest stages. In 2008-2010, a wave of investments "in molecules" swept across Russia. In 2010-2012, fashion shifted towards IT startups. The trouble is, that family offices (and their owners themselves) little understanding of the subject of venture. There are a lot of scammers on the market, specialists in "risk at someone else's expense", crazy, boys and girls, confused by calls to open their own business and taught to beautifully sell their own and other people's ideas, - and just as many naive, ready to believe in eternal youth from a test tube and thermonuclear fusion in the garage of wealthy investors. There are precedents on the market for “pumping” tens of millions of dollars into an “anti-aging agent” in the form of drops, "Revolution in the automotive industry" based on developments in the 1950s, "The future leader of online payments", etc.. Understanding the basic laws of the development of science and technology - the continuity of developments, need a base for R&D and broad cooperation - and knowledge of the subject of venture (mechanical engineering or physics) vital for decision making
about investing.
The recipe for family office success is often to ditch the self-investing function.. The task of the office should be to analyze market offers, selection of the best and control over the invested funds. And if managers are motivated correctly, the result will be significantly better, than with "subsistence farming". If the office owner thinks, that he can create "his" products, it is worth trusting the opinion of the market - invest capital and organize marketing, attracting third-party clients. Possible, that the project will grow into a successful business.
