Type of Risks That UHNW Families Face In Asset Management

Description:Any UHNW family needs to be prepared for the worst risks in their financial plans. To aid them, we have asked Julio Lage from Belvedere Capital to make comment on how the family can benefit in stable risk management and what would be his advice. He said that the plan involves better wealth management with risk management tactics. But, before one proceeds to the management part, it is prudent to understand the various risks and the need to regulate them for financial stability. Wealth managers are aware of such tactics, which they implement in their ultra-high net worth customers’ assets and produce formidable results for a long term.

Corporate executives of ultra-high net worth levels frequently experience challenges that may lead to a more risky situation for their personal and family wealth. For them, the exposure to risks is usually based on just one company, which they work for as well as own. Usually such business executives invest a major part of the shares in their own company. This is not bothersome to them, as it may have let them build their profits in the first place. However, considering a successive financial plan for retirement, such an investment strategy may lead to a major risk for the UHNW individual. This is where Julio Lage Vitoria, co-founder of Belvedere Group of family offices steps in to prepare and mitigate risks related to wealth sustenance in UHNW families.

With the help of a family office all financial affairs can be managed for sustainable growth of the future generations. Furthermore, there is also a need for risk management in this planning that will enable streamlined financial services. Considering the risk factors, UHNW families commonly face the following four risk types.

·         Concentration Risk

While concentrating an investment is lucrative, diversifying it will reduce the chances of unwelcomed risks. According to Julio Lage Hedge, investment patterns should be studied properly to understand when to shift from a concentrated investment to a diversified one. In simple terms, keeping all your eggs in one basket can be a risky affair that UHNW individuals avoid practicing unless they are completely sure of the risk being taken.

·         Management Risk

When a UHNW individual retires from his company or business, his/her assets that were concentrated in the business may be shifted towards a more diversified investment planning. However, the risk of managing the assets on his/her own is a daunting task here. This is because while working in the company, there was a team of executives supporting every investment decision. But, retirement may require the UHNW individual (who might possibly have been a CEO before the retirement) to reiterate his/her investment plan. Family offices can greatly help in solving this issue.

·         Risk of Balance Sheet

The ultra-high net worth individuals may find their balance sheets at corporate levels quite comfortable. They are well aware of aspects like capital reinvestment, money distribution, and liquidity balance. In fact, individuals can utilize assets with liabilities available in the corporate world. But, when it comes to personal or family level, the availability of liabilities (cash) for various personal uses is at risk. The balance sheet is quite similar in UHNW families to the one at corporate level, but the current liabilities are different. So, same constraints and risks apply here as well which one has to overcome.

·         Succession Risk:

There are situations when the current leader in a UHNW family needs to retire and move the burden of the asset management to his successor. This continuous evaluation and identification period to find leadership talent internally and externally requires an eligible candidate. A good successor can help in keeping the cash flow and investment significantly stable for which a well-planned succession is essential.

Risk management in UHNW families is needed to ensure that financial stability is always maintained. For that, Julio Lage Vitoria and his team of capable financial advisors at Belvedere Group of family offices can be of assistance. 

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Created on May 13th 2018 21:58. Viewed 625 times.

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