How Wealthy Families Cope During a Crisis

Wealthy families usually hold a considerable portion of their assets in non-liquid, hard-to-value investments. This poses great challenges for asset managers to cope in times of crisis.

By Matthias Jenzer, CEO, Quilvest (Switzerland) Ltd.

A crisis has two basic stages – the way in and the way out. In retrospect, mastering these two very different stages determines how well a crisis has been managed. In financial market crisis, this applies to all investors – individuals and families – whether very wealthy or not.

Conceptually, mastering a crisis is straightforward. The past provides many examples. Assets have to be sold-off expensively before the crisis and then bought back cheaply in the middle of the crisis. This sounds conceptually simple, but is very difficult to accomplish in practice. The biggest difficulty is to remain pragmatic, logical and calm at all times – no euphoria, no panic. This basic problem is the same for all investors. We are all human, and all of our water boils at the same temperature.

Big Differences

Nevertheless, there are still major differences for well established families during a time of crisis.

Though all people boil water in the same way, some people also have top-quality fresh vegetables and special spices they can add to their pot of boiling water. When the extra ingredients are added to water in the right proportion, they can lead to quite a delicious broth.

In a similar sense, well established families can survive crisis fairly well in the asset-specific sense, or at least better than most other groups or individuals. That said, we must also recognize that not all wealthy families are alike.

There can be significant differences in the source and quality of a family’s core wealth, which usually consists of one or more industrial or service companies. Even within this group, there are families with well diversified wealth, and those with minimal diversification.

Stark differences can also be observed in how a family is organized and how it networks within and outside the family structure.  Equally important are the advisors who influence the family with their ongoing analysis and advice.

All these factors are critical for determining how well a particular family can manage a crisis.  It is essential for a wealthy family to set up suitable processes and committees to go through good and bad times as calmly, cleverly and effectively as possible. Well-organized families try to involve the next generation early and firmly in the crisis management process. All family members who are ready for serious discussions and willing to be part of the decision-making process should be involved. This encourages a broad diversified set of views which lead to more effective discussions and qualitatively better decisions.