The family office is setting up an investment committee, what are some of the roles that should be considered?
In this article I look at one close to my heart as it’s often the role I take within the investment committee – the Critical Friend.
Why are they necessary?
Objective Perspective: Being somewhat detached from the regular operations of the family office, a critical friend can provide a fresh viewpoint. They are less likely to be influenced by internal politics or dynamics.
Expertise and Experience: Typically, a critical friend is someone with deep experience in investments and wealth management. They bring this expertise to the table, providing insights that others might overlook.
Challenging the Status Quo: Their primary role is to challenge decisions, strategies, and assumptions. This ensures that the investment committee doesn't become complacent and continuously strives for better outcomes.
How do they Operate?
Active Listening: Before jumping to conclusions, a critical friend listens carefully to proposals and strategies. This helps in understanding the rationale behind decisions and then critiquing them effectively.
Asking the Tough Questions: They aren't afraid to voice concerns or ask challenging questions that others might shy away from.
Recommending Alternatives: Apart from pointing out potential flaws, they also provide alternatives, ensuring the committee has multiple options to consider.
The critical friend is neither the vocal leader of the pack nor the silent executor of strategies. Instead, they're the discerning voice poses the question: "Have we truly considered every angle?"
They are not there to be negative or perennially rain on the parade. They are tasked with asking the reasons behind opinions. They are also there to give voice to reasonable objections that can be drowned out or dismissed offhand.
All investment committees need this person, make sure they are given the agency to provide their guidance.
Finding Your Critical Friend
Typically, you are looking for someone with experience from both the buy side (asset owner, family office, endowment) and the sell side (wealth management, funds management, professional services). The idea being that they have seen how the sausage is made as well as developed skills in critically assessing service providers.
They should be unencumbered by product and only incentivised to be on your “side of the desk”, not for any investments or deal flow that you may execute. If possible, they should have the ability to provide general wholesale advice, providing a level of scrutinised governance of their company.
Importantly, the family office should not provide the bulk of their revenue or income. This allows the individual to provide an opinion without fear or favour.
“Hall Road Investments Pty Ltd is a Corporate Authorised Representative (CAR No. 001279456) of Non Correlated Capital Pty Ltd (AFSL No. 499882). Shaun Parkin is an Authorised Representative (AR No 001279458) of Hall Road Investments Pty Ltd (CAR No. 001279456) and is authorised to provide general advice to wholesale investors”