I have mentioned my role as "critical friend" on several family office investment committees here. Speaking to some family office investment teams recently has provided some handy feedback on the elements to consider when establishing an IC or advisory board. These are meant merely as discussion starters, and none will be the same. As always, have a process.
Determine the reason for the IC. As family offices are not as burdened by the same level of compliance, this can be very specific to your needs. It also needs to be clear on where the IC vs the executive decision making occurs. Will the IC be the vetting/due diligence and provide recommendation for the executive/family members to make the final decision or will they be more involved in implementation?
There is no point in having an IC that serves no function, has no influence or becomes bogged down in bureaucracy or inaction. Having a clear purpose and process for deciding how the portfolio is managed is a priority for many offices, in particular those that have strong internal voices or are tightly controlled. If a single voice or a small amount of individuals run the portfolio, the benefits of a committee is diminished.
For some, the IC can provide a sense check, add new or different skill sets to the internal members and act as a group to ensure the implementation of the Investment Policy or guiding principles of the family office.
Start at the start: How many members should there be. Some say 4 or 5 is optimal as it allows people to leave without causing major disruptions. How many family members/shareholders should there be? If the IC is not making the final investment decision should there be more independent members.
Who should it be? I have seen some ICs provide less value as everyone is closely connected, with little contrast in skill sets, opinions or have a fear of conflict/disagreement. Others because of too many differences which causes long discussions and analysis paralysis.
Other governance issues to think about is the ability for those with investment product or services to sit independently on the IC and if they sit on the executive or board of another firm, is there added compliance considerations to manage or be managed by.
Often, the best source for investment committees is your network, finding the right fit can be a process but having the wrong people can make the running of the investment office a more arduous and high risk process.
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