A new report from JP Morgan draws on the expertise of those with big family fortunes who share insights into governance and impact investing
Growing a family fortune comes with both responsibility and risk and both increase along with the scale of the wealth.
So how do billionaires manage some of the key issues of significant wealth, such as governance, family feuds, and making an impact?
Hour-long interviews with almost 80 billionaires with an average US$4.9 billion by JP Morgan Private Bank has revealed how some of the world’s wealthiest families manage their fortunes.
"In their own words, these families share lessons, real-life examples, honesty and a tremendous amount of detail on a wide array of topics and concerns they face," added Benjamin Hesse, Chief Operating Officer, J.P. Morgan Asset & Wealth Management. "Overwhelmingly, they stressed the importance they place on being good stewards of wealth and, even more significantly, building a connected family."
Among the most valuable revelations from the interviews, was the importance of engaging the next generation.
Family principals shared multiple ways to encourage leadership including requiring younger members to work outside of the family enterprise to equip them with the tools they need to succeed.
Nearly half encourage or require the next generation of family members to enrol in educational courses to help them one day navigate the family's future endeavours.
"As families expand and transfer their wealth and legacy, principals at the helm feel that providing the next generation with more flexible choices allows them to both shine and better benefit the family based on their unique strengths," added Cohen. "A common theme is that they don't want anyone to feel forced on to one singular track."
We all know that families often fall out. But most of the interviewees cited clear procedures, policies and rules around the family enterprise as being crucial to managing conflict.
These procedures include navigating a shareholder exit, compensation agreements and expectations, and a protocol for expressing feedback or points of dissention.
"Guardrails are imperative, and commitment to securing family harmony is more so. As one principal summed this up, 'unity has far more value long-term than any particular deal,'" added Hesse.
The interviews also revealed the strong desire of billionaires to do good, echoing a recent survey among clients of UBS.
Three quarters of billionaires said they are philanthropically motivated to make a lasting local or global impact, especially in education and healthcare.
However, just 22% of family principals say that they have a space for sustainable investing or that it plays a significant role in their strategy. This is set to change though, as 52% note they are considering it for their future investment plans.
"For most families, the idea of 'giving back' is no longer a question of just donating money," said Cohen. "Most families take a holistic approach that helps shape family charitable, business and investment decisions, focused on applying their families' values and missions across all their various avenues of capital."
The Stewardship & Purpose report also found that families are investing primarily in technology, including biotech, with 54% of principals saying it is their main industry of focus; followed by healthcare (30%), real estate (25%) an opportunistic approach (22%) and consumer products (16%).