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ADVICE CORNER


“For family offices that are a number of


generations removed from the founder, the importance is to have a board or investment committee that can review the actions of the family office investment staff over time to ensure there is continuous adaption relative to the office’s long-term objectives.”


Should principals let geopolitical disrupters, such as Trump and Brexit, influence their decision-making? D’Souza recounts his various experiences as a board member for certain family offices where select members were letting potential behavioural biases overwhelm investment decisions based on the results of the US election of President Trump or the UK’s decision to leave the EU. “Some people simply did not like the


political result,” he says. “And so they automatically had a great


distrust of the movement in the market. And that distrust was born out of political beliefs, not out of economic fundamentals. The economic rationale existed but was ignored or relegated in importance. If revenue, margins, and earnings are growing domestically and globally, if unemployment is decreasing, if taxes are going lower, and risk premiums, rates, and inflation stay low then valuations should increase. However, you may not politically like certain results, and so you have a political bias that is superseding the economic fundamentals.” D’Souza explains this then has a secondary


effect: because you disbelieve what is happening, you are waiting continuously for a correction in the market and therefore feel less inclined to invest and profit from any subsequent market gains. The black swan, an unpredictable (usually negative) event, is suddenly and continuously being predicted. Does D’Souza then have any suggestions


about how to separate out psychological and rational economic drivers of decision making? His suggestion is refreshingly low-tech. “One of the most important things I do


is write memos to historically document the nature of the investment conversation around the decision-making process. Think of it as movie script complete with emotional cues and tones to describe the feelings of participants when discussing and prioritising


28 CAMPDENFB.COM


You cannot predict the future. However, a family office can understand their spending patterns


any fundamental points. And it is done without pointing fingers at anyone. “Putting a time stamp is really important.


If it is kept confidential and internal, it creates a battery of data points that will be able to tell you in the future whether or not you are making repetitive errors,” he says. “As long as family offices do not necessarily


act on biases, without understanding consequences, there isn’t anything wrong with having opinions. It is when you act or overtrade on a particular bit of incomplete or anchored information that mistakes happen.” D’Souza’s ultimate suggestion is avoid


predicting future asset class returns at all, rather forecast family office costs [lifestyle expectations] and plan around that. You can then backsolve return expectations and whether it is feasible. “You cannot predict the future. However,


a family office can understand their spending patterns. They can understand their cost structures in terms of their family and future generations. That part they can control to some extent. Once you analyse that, you create a margin of safety, and then that margin of safety will allow you to think through what risk-return you need to take to be able to create the type of investment environment you need to support your family and their future generations,” he adds. Here, family offices can count their


blessings. Unlike Michael Fish, millions of people are not counting on them to get their forecasts right.


ISSUE 72 SUPPLEMENT | 2017


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