As a worldwide pandemic, COVID-19 has not only affected the health of people and the well-being of society, it has also had a direct impact on global markets and businesses. Not the least of those affected are the strategic and operational models that support Family Offices. COVID-19 presents potential risks at both levels, and the challenges are further heightened in embedded Family Offices where a small cohort of key staff supports both the business and the family.
In the midst of this unpredictable environment, there are potential strategic and operational risks to Family Offices to be considered as part of an immediate risk management response and contingency planning for the future.
Strategic Considerations for Family Offices
- The family’s shift in priorities from growing the wealth to wealth preservation and asset protection requires careful consideration and potential restructuring with an emphasis on flexibility.
- Market volatility presents challenges and opportunities. Private capital is the fastest-moving, and nimble Family Offices are well-placed in this regard.
- There is a myriad of considerations, including supply-chain issues, inventory and contractual where trading businesses are an important component of the underlying wealth managed by Family Offices.
- Board governance and clear communication strategies remain crucial.
- Key management risks include the need for new decision-making processes and controls when pivotal employees are unable to work. Contingency plans and quick responses are critical.
- Maintaining the Family Office’s daily operations and administration can be challenged due to a high proportion of employees who are unexpectedly unable to work. Those with virtual family offices are likely to be better positioned to respond due to a higher level of operational de-risking.
- IT infrastructure must be sufficiently robust to support the operations, staff working from home, and the need for virtual business meetings due to travel restrictions and social-distancing requirements.
- Operational costs continue, with the potential addition of medical sick-pay, while predictable revenues may be in question. Cash flows should be reviewed as a priority.
- Health and safety considerations for the Family Office employees require careful consideration as do related legal matters.
- An atypical environment is created, which is likely to test the staff motivation mechanisms in place.
Now is the time for Family Offices to stress-test the governance mechanisms they have implemented for decision-making and communication, to assess the durability of the digital and human infrastructures, and test the strength of their contingency plans.
We at KPMG Private Enterprise understand the potential consequences of the current global health situation for Family Offices. I encourage you to follow our regular series of blog posts to stay informed about how COVID-19 may affect your Family Office strategies and operations. Please reach out at any time to the KPMG Private Enterprise Family Office and Private Client advisers in your country or territory for their guidance.
Please visit the KPMG website for our business overview and action checklist entitled “Understanding the Implications of COVID-19 for private companies”.