The drastic increase in technological advancement and the move towards a more sophisticated and digitalised society has taken many family offices by surprise. This holds true especially with multi-generational private family offices representing the interests of families with rather traditional backgrounds. It is often difficult to marry technology with the classical handshake-based business model that these family offices are all too familiar with.
The rise of the investment platform
These days, more and more private wealth is being invested by individuals through their family offices. Digital investment platforms offer a way of streamlining this deal flow. The providers of these platforms promise a more effective, well-rounded and high-quality offering of investment opportunities. The quality of deals is high, search functions are advanced, and the sheer number of deals often exceeds expectations.
Technology is evolving on these platforms. In sophisticated versions, with the support of AI, these platforms can even make smart investment choices, pre-select opportunities, conduct the initial level of due diligence and, in some cases, even suggest a suitable co-investment partner for deals that might be too big to be taken on by the single-family considering it.
There is no denying that investment platforms are helpful, they organise an unmanageable sea of funds, financial products and direct investments. A technology-based platform selects and filters, categorises and sorts according to criteria provided by the user, they take an unbeatable systematic approach, and they are not governed by human emotion and subjectivity. This, along with the convenience of being able to manage multiple investments on one platform, at any time or at any location, are but a few of the many factors that have contributed to their mushroomed popularity.
The promise of anonymity
Online platforms promise – and deliver – anonymity for investors. What is soon discovered thereafter is that all that glitters is not necessarily gold. The granting of anonymity comes coupled with a complete lack of control over who will be investing alongside you, your choice of co-investor. Quality deal flow is characterised by three factors.
- Is the deal off-market?
- Who has seen the deal?
- Who has introduced the deal?
By its very nature, online platforms eliminate these three factors, they cannot exist simultaneously. Online platforms promise anonymity, but is that what family offices are looking for? The answer is a resounding yes and no.
Families don’t necessarily want to consider deals that have gone public and were assessed by dozens of others. Deal quality and price are directly tethered to interest – the higher the interest in the deal, the greater the price and the more diluted the quality. Families tend to prefer deals that were introduced to them through their existing family office network, as this instils trust and confidence. A deal introduced by an established family office relationship, or by a colleague on the 19th hole, has a more personal value than a deal selected by a lifeless algorithm.
The role of the human element
Popular indeed, but where investment platforms fail is in their ability to create personal and meaningful connections between investors, their ability to establish a powerful level of trust and to build and maintain solid networks. Many investments are made based on personal introductions, assurance established between partners a long time ago and confidence in the counterpart.
An inherent characteristic of the family office network is discretion. It is a small world however and those who inhabit it either know each other personally or at least have heard of one another. Some families are on the more private side of the spectrum and take their secrecy to new heights, while others are a little more outspoken and live in the public eye. Public or private, what both representatives of this circle of investors have in common is that they want a good deal. Not only this, but they also want to be able to find them themselves. For many, the search for quality deals is like an Easter egg hunt. And let’s be frank, an Easter egg hunt is simply no fun if you use an app telling you where the eggs are hidden.
A notion that we all might relate to is that of finding a bargain when shopping. Finding a good deal by keeping your eyes wide open and scanning the lower shelves of the shop is much more fun than friends telling you of a widely communicated sales campaign. The same could be said for investment opportunities. Family offices want the feeling of having discovered something themselves and they don’t want too many others knowing of that deal. Many investors like the feeling of having discovered an entrepreneur or having come across an opportunity on their own merits. It is part of the game. Also, the fact that you are the first, or even the only one, to have identified a deal means that you now have the power to bring people of your choice on board as co-inventors. Meaning you have now been imbued with the ultimate power to control who will be investing beside you.
Physical versus digital conferences
Advancing with technology is required in order to enable us to make the proverbial leap into the next stage of our evolution, but this does not mean that absolutely everything must be made completely digital. Much like investment platforms, there is no substitution for the physical nature of conferences. You cannot compare your view of a photographed landscape with that of the photographers. Physical conferences, in comparison to their digital counterpart, is a perfect example of this, of yet another instance where the human element plays an integral role.
There is almost nearly nothing like having a family office principal or representative attend a physical conference as opposed to one that is digital. Being physically present at a conference will automatically stand a principal or representative in good stead. They will be put in a powerful position in which they can foster new relationships or nurture those which are already in existence, they can rub shoulders with their peers, have their ear close to the ground and potentially discover new opportunities that have yet to be unveiled.
Although digital conferences have the advantage of easily securing more attendees, it is impossible to have these same benefits as mentioned above. With digital conferences, you cannot escape the feeling of being talked to instead of engaged with. It is near impossible to mingle and there is even less of a chance to network with your peers. Think of the logistical nightmare of having 300 guests on the same call and being able to talk to a specific person, it just doesn’t work in the same way.
The family office network thrives on networking
In conclusion, family offices are run by people, they represent the interest of people and they rely on people, whether it be for advice, insight or relevant connections. This cannot, and should not, be replaced by technology. Technology has served us and will continue to do so in many phases of our lives. We should be grateful for it making our lives easier, better and safer. These platforms are helpful, but they cannot replace human interaction or the human aspect that the family office world so desperately craves, the aspect that the family office world is based on and cannot live without. In the war of Man vs Machine – man emerges triumphant.
One thing always holds true: no level of technological sophistication can replace a handshake.