Is your Family Office Software ready to face the next market downturn?
“55 % of family offices believe we will enter a recession by 2020. In preparation for the next economic downturn, 45% are realigning their investment strategies to mitigate risk, while 42% are increasing their cash reserves."
UBS and Campden Research "The Global Family Office Report, 2019"
As the CEO or CFO of a family office, you will be considering the impact of this . It is now time to make sure that your fund accounting software is fit for the demands that your family office's mandate will impose.
What is really happening in the financial markets today?
Let’s be clear right from the start; I am not claiming to predict the timing of the next downturn, but the majority of investors and financial media believe that it will happen sooner rather than later. It could, in many ways be a self-fulfilling prophesy, if nothing else.
However, some of the main events that may lead to it, can be summed up briefly as follows:
- Geopolitical risks have been increasing over the last two years, on both sides of the Atlantic. The US presidential situation and upcoming elections, the UK’s Brexit struggles and the Chinese facedown in Asia, threaten to knock off the fragile economic growth.
- Trade wars and tariffs are affecting international commerce and the reversal of globalisation is forcing a rethink in investment in emerging markets.
- Since the last crash in 2008, despite the attempts of central bankers and policymakers, the "fix" is not believed to have worked. Lowering interest rates and quantitative easing have done little to alleviate the pain.
Aside from planning for the future, it has been widely reported recently that investment advisors are already finding it increasingly difficult to extract a return from their portfolios.
Confidence in traditional portfolio investments such as equities, corporate bonds and hedge funds is beginning to ebb, as investors consider the effect of the next downturn on their valuations and move away from risky investments to safer havens.
Asset allocations are becoming more geared towards investments that can be directly managed as a business rather than dependent on speculation, notably:
- direct Private Equity
- direct investment in private enterprise
- credit and loan management
- owning and managing real estate
These activities require internal business skills over and above investment advising, skills which a lot of traditional family offices have already, as most of them have arrived in accumulating wealth through some kind of commercial, trading or other business operation.
Can you as a CEO or a CFO of a Family Office afford to ignore these messages to make sure that your internal Investment accounting software is fit to face the challenges of a downturn?
Ensuring your financial management systems are in shape
Diversity in operations
Your Family Office management system will need to have the flexibility to manage diversified classes of investments, such as the ones described above, as well as to enable you to track performance in portfolios, sometimes with measures that are not customary in investment management.
Furthermore, it will need to include powerful ERP capabilities to manage direct activities, so that complex interfaces or duplication of entry to Portfolio Management systems can be avoided.
Agility will become more necessary to face the challenges of the next market downturn.
Family Offices will need to become more global to take advantage of new investment opportunities. This will mean facing the challenges of regulatory, taxation and other local requirements, in relevant jurisdictions.
Can your systems cope with diverse international transaction taxes and duties as well as corporate and other income taxes?
The present regulatory climate means that Family Offices will need to face more scrutiny in the future, making it necessary for them to improve their image of accountability, inclusion of strategic environmental sustainability policies and overall global responsibility. As operations diversify, consideration will need to be given to establishing procedures for anti-money laundering, transactions affected by sanctions and any involvement with politically exposed persons.
Real-time information from multiple sources within and outside the management system will need to be accessible and reliable, to enable decision makers to react timely to events that in market downturns must be critically monitored. Decision making will continue to be more proactive to avoid the consequences of these events, whether positive or negative.
Does your organisation have the necessary tools in place to meet the needs of these peripheral activities?
Review your systems and prepare for the next financial downturn
Changing your family office software might seem an insurmountable challenge if you are still using Excel and accounting systems not geared for your specific business needs. And yet, by implementing the right solution you may give your operations the opportunity to weather out the next economic storm.