Family offices have historically been built with the explicit mandate to protect, grow and pass on the family wealth through generations. And if it’s not explicit, it’s only because it was so obvious to the founders and their advisors that it doesn’t even need to be said.
But in the face of rising inequality, social unrest and climate disasters, more individuals are uncomfortable with holding extreme wealth for the exclusive benefit of themselves and their own descendants, rather than activating it in service of a livable society for everyone.
These are the steps we outlined for a family office that wanted to spend down their charitable foundation of several hundred million dollars while activating all assets for impact along the way:
Step 1: Clear foundation policy
Create a clear target end date for the foundation’s lifespan. This is most often expressed either as a specific number of years from today or as a specific number of years after the death of a key individual.
Step 2: Investment Policy Statement
Formulate a new Investment Policy Statement that includes guidance for the team on key issues, including:
- Target returns for an investment portfolio that is being maximized for impact rather than maximized for financial return to the foundation where perpetuity is not the goal.
- Liquidity requirements over time (while not assuming that turning everything into cash and granting it out is the only approach).
- Definition of “impact” and how it will be measured/evaluated.
- Level of risk tolerance, in light of the priority for high impact along the way rather than the long-term growth of the foundation’s assets.
Step 3: Staffing
Consider staffing requirements and existing job descriptions in light of the new Investment Policy Statement. You may need to supplement/complement the skill set, networks, and sourcing methodologies of existing staff with those of new team members. Don’t forget to re-evaluate your Investment Committee composition, as well.
Step 4: Compensation
Maybe the most important step: Revisit compensation policies including base and bonus compensation for investment staff to correctly align incentives around impact and financial return in the context of a limited lifespan. Otherwise, it can cause a great deal of anxiety (and unspoken resistance) when investment staff are conventionally compensated on growth of assets and suddenly told the assets are intentionally shrinking.
I believe this trend is only growing – which means there is a great opportunity for family office professionals to differentiate themselves by leaning in rather than trying to hold back.
About Sharon Schneider
Sharon Schneider is an entrepreneur, philanthropy expert and strategy consultant to the next generation of social impact founders, businesses and family offices, including Giving Pledge signatories, Forbes 100 members, private foundations, and single-family offices.
