During my professional career as a wealth manager I had a privilege to work with the first and second generation of wealth creators. We discussed quite many angles of their wealth starting from the sources of accumulation to expected or targeted investment performance, however, one theme was extremely rare. It is succession planning.
Succession planning is a process. It's not like flipping on a light switch, or even changing a light bulb one time and then ignoring it. Succession planning is, you might say, a full contact sport, because it requires the current leadership of an enterprise to really roll up their sleeves and dig into the details of the business. The purpose of the effort is to thoughtfully identify and develop a comprehensive strategy for the transition of management, ownership, and control of a family enterprise, but unfortunately many families don't focus on succession planning proactively. They treat it reactively once a triggering event has already occurred, such as the death of the family patriarch or the retirement of a family business CEO. It's worth for families to think of succession planning as beginning much, much further out than that triggering event, because the trigger isn't when you plan, it's when the plan you have gets implemented, and its effectiveness is tested. The plan is what you develop before during calmer times.
For business owners that haven't yet started succession planning, what is the first question they need to consider when thinking about eventual succession?
The first question is always the same, and that is, what is your goal for undertaking the succession planning in the first place? In other words, what direction are you headed in? Fundamentally, family owned businesses can be transitioned in really only a handful of ways. First, you can pass on a business to the younger generations in the family, thereby creating or continuing a multigeneration family business. Second, you can sell the business either through a private sale or listing it on a public exchange, so basically realizing liquidity while transferring ownership and control outside the family. Finally, there are some hybrid options, which sometimes might include something like transferring ownership to key employees or the like, but basically, those are most fundamentally the end results here. So, next, though, it's important to assemble a team because succession planning is multidisciplinary, and you're going to need multidisciplinary expertise, and then thinking about your team, you might draw upon key employees or existing family or business advisors, members of the family or external advisors who specially work with families on transition and governance, but consider though that eventually you'll need your plan to include a variety of important elements including business, estate planning and wealth or liquidity management issues. So, entering these questions alone and what direction you're heading in, and who do you want to serve on your team can often take quite a bit of time, and families need to think about their goals and flesh these questions out more fully long before they knock into their attorney's office to draft a new operating agreement or trust structure. Those goals are the driver or the foundation of everything else, and it's worth taking time to get that part right.
From what size on and type of business is it worth it or needed to do a succession plan?
If the goal of succession planning is to ensure a smooth transition from one generation to the next, then any business, regardless of the size of the type that has that goal in mind, should engage in succession planning. Really, the size of the business, the value of the business, and even the industry that the business operates in is largely irrelevant for this purpose. It has everything to do with the family.
How transparency and communication comes into the process? Is everyone involved?
Communication is absolutely fundamental to this process. In study after study, the key characteristics of families who have successfully maintained family wealth for three generations or more, it boils down to three things, and those are communication, organization, and a shared set of beliefs or values, and interestingly, demonstrating those three traits is even more predictive for maintaining family wealth successfully than it is employing strategies for tax minimization or maximizing investment returns. This is not to say that you must be fully transparent about your questions or concerns for future succession from day one - pitting children against one another is not an effective plan for identifying a CEO. Instead, by failing to communicate with interested parties, or choosing perhaps to involve only those who are employed by the family business in family meetings, is a recipe for discontentment and discord among those who are excluded, and eventually, that dynamic paves the way for potential litigation among family members in the future.
What about family philanthropy? How does it play a role in the succession planning process?
Family philanthropy is one of the best ways to engage younger generations. Those who work in philanthropy like to say that philanthropy are your values and actions. So, what better way to teach your children or grandchildren what you believe in than by actually acting on those values together through shared philanthropy? Even if they're too young to hold a decision-making power, why not allow them to listen into the meetings where grant-making decisions are made. As an example, a family may allow the youngest generation to actually recommend nominal sized grants at one of their meetings. Family may challenge the children, as young as 10 years old, to come up with a cause that each of them cared about. The ideas might go to wanting them to give to their local school, supporting animals, which is of course very popular among young kids, and actually then helping to improve a local park. The kids then gain a deep sense of satisfaction from this process and feel more closely connected to the family’s philanthropy, and the parents end up learning something about their children and about how they perceive the world, so it’s truly a win-win.
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Some quotes first:
1. Activist investor Jeff Ubben has left ValueAct Capital, the $16bn hedge fund he founded, to launch a new environmental and social impact investment company.
2. „Companies, as governed today, with investors asking for more current returns and more buybacks and so forth, aren’t working for society or nature,“ he said. „But I have to prove that there’s a return [in long-term impact], because otherwise . . . you’re not really changing anything.“ <..> „Finance is, like, done. Everybody’s bought everybody else with low-cost debt. Everybody’s maximised their margin. They’ve bought all their shares back . . . There’s nothing there. Every industry has about three players.“
3. Having an impact fund and a traditional fund under the same roof at ValueAct was „confusing“ for investors, Mr Ubben said. Those who opted for the impact vehicle worried they were leaving returns on the table, and those who opted for the flagship fund worried that about being portrayed as environmentally or socially „unconscious“. „I don’t think these two strategies peacefully coexist,“ said Mr Ubben.
Second, that was the essence. If RE investments are driven by "location", "location", "location" mantra, then in "ordinary" investing it is not only "return", "return", “return" anymore. I have been following for the last few years already an emerging and quite fast growing trend in hedge funds space to invest if not "for" then at last "with" social and/or environmental impact in mind. And that will benefit all of us. Even those who are far away from investing.
#bitcoin #cryptos #CryptoFunds
Yes, you noted it correctly, the post below is on crypto funds. You might start saying cryptos are for dummies, any rational investor should avoid them, they have no any value and it's just a speculative bubble.
Pause here for a second. For as long as investors do allocate a portion of their portfolios to crypto currencies, tokens and / or crypto funds it's worth taking a look at the different alternatives and their performance. Last year I invested myself into 1 crypto currency, 1 crypto fund and 1 token directly. Traded few more. A fund employs a long/short strategy and I want to be ready when the recent bubble bursts from it's short side (or gain further if it continues from it's long side). Token is a spicy ingredient in my portfolio with tenfold raise since my first investment in May'20. Cryptocurrency is 1:1 backed by USD and yields 22-26% p.a. with daily payouts. Nothing to compare to 10x over 9 months, but still mind blowing if you compare to ''cash'' yields.
What about fund performance then? A fund I'm invested with still has a too short track record to draw any meaningful conclusions. So let's take a look at the whole market.
As per Crypto Fund Research, crypto funds were again the hottest investment managers in 2020, gaining more than 160% on the year. However, bitcoin performed significantly better than the CFR Crypto Fund Index, which measures the performance of a basket of 70+ crypto funds.
So did crypto hedge funds actually underperform? As in any case where you don't now a quick answer but still want to look smart enough, you say "It depends". So the answer to the last question is ''it depends''. And let me explain why.
Crypto hedge funds, as many other funds, are supposed to manage risk in the sometimes extremely volatile markets. As you know, cryptocurrencies and volatility go hand to hand. This typically results in significant outperformance when Bitcoin and other cryptocurrencies decline and underperformance when they rise considerably as they did in 2020.
Crypto funds also operate a number of strategies - some strategies like arbitrage are essentially market neutral and will almost always underperform a long-portfolio in bull markets and outperform in bear markets.
In fact, since the beginning of 2017 crypto funds have gained 2,812% vs. 2909% for Bitcon (Crypto Fund Research's calculations). Over multiple market cycles, crypto funds have kept pace with Bitcoin's gains. But here's the important part... they've done so with far less volatility than Bitcoin. And this is exactly what all investors hope for.
Crypto funds' ability to manage risk was never more clear than during 2018's "crypto winter". While Bitcoin's price fell 75% from its peak. Crypto funds lost less than 50%. While most investors don't cheer a 50% loss, they likely took solice knowing had they been fully exposed to Bitcoin they would have lost far more.
Still, crypto funds are a risky investment and most suitable for institutions and sophisticated investors. Thus, have a double or even triple eye when selecting particular fund and stay well invested.
Electric Vehicle Investment Roadmap
- Electric Vehicles (EVs) are an emerging set of technologies with enormous potential to transform transportation.
- As such, EV companies represent significant opportunities for investors who can determine when and where to invest in this complex market.
- This article provides an investor roadmap to more than two dozen varied investment opportunities.
- These opportunities go beyond investing in Tesla, and look at the auto manufacturers, new US start-ups, Chinese EV companies, and supporting industries.
- As in all investments, considerations of the companies strategies, valuations, and investment timing are critical; especially with the volatility of these investments.