You head the Global Private Client Practice at Cambridge Associates. Tell us a little about the practice and your work with private clients.
MP: Our private client business has been a meaningful part of our work for almost 40 years. Today, we work with approximately 250 private clients and family offices all over the world. People tend to think of CA for our work with endowments and foundations, but about one-third of our business today is from private clients.
We purposefully built our private client practice by taking our investment approach that was pioneered by the best institutional investors, built on deep analytical rigor and specialized skill, and customizing it to meet the needs of families with sizable assets.
Investing for families seems similar to investing for institutions: balancing today’s spending needs with tomorrow’s. Other than the obvious consideration of taxable assets, how does the approach with private clients need to be customized?
MP: It does have its similarities, and it’s why we are able to start with that foundational investment framework that has been so successful for decades.
But private clients have unique complexities. First, you mentioned spending. Unlike tax-exempt organizations, families do not have a formal, stated spending requirement each year, which means that their portfolio needs are based on their very specific, personal situation. It is imperative to understand their entire enterprise when investing their assets. For example, many wealth owners continue to own and operate the companies that they founded, which plays an important role in how they think about their overall portfolio objectives and spending needs. Families also tend to have other investments such as real estate holdings and the like. It requires a deep level of partnership and an ability to build a truly customized portfolio that is specifically calibrated to their families’ needs.
And those portfolio complexities could impact investment decisions.
MP: Exactly. The investment decisions our investment teams make for a private client’s investable assets might differ greatly if the family has a significant amount of direct real estate holdings or an outsized equity position in the wealth owner’s company, for example.
But aside from those portfolio complexities, there’s another aspect of investing private wealth that is unique to private clients.
It’s not just about the dollars in their portfolios. There’s a lot that comes with those dollars—the dynamics that they create within the family, or socially, or within the communities where families are trying to create positive change. How those assets are transferred to the next generation. How wealth owners create and manage a family office. How families balance the needs, risk tolerances, or time horizons for different family members. The role that effective governance plays when managing multi-generational wealth.
There really can’t be one right answer for all families to any of those questions.
MP: There really can’t be. Which is why, when you take all of these things into account, you can easily see why families need to have stewards of their capital who really understand their unique challenges.
To use an analogy—if you have a cold, you might go to your general practitioner, and you would get good advice on how to treat it. But if you have a more complicated issue, you’d want to visit a specialist. There’s a lot at stake, and you need someone with deep expertise of your issue, not someone with general knowledge of the body.
A lot of banks are “generalists,” looking to raise assets and be compensated on those assets. Here at CA, we’ve developed a “specialist” practice. Our focus is not simply on putting capital to work. Our focus is on growing and preserving our clients’ wealth and helping families create the legacy that they want to create for their family or within their communities.
Legacy creation is an interesting concept. What do families need to do differently to make that lasting impact they desire?
MP: Successful multi-generational families do three things well to create a lasting legacy, and it’s really the framework for how we work with all our private clients to steward their capital.
- They manage their capital well,
- they give money away and by doing so create long-lasting social capital that may transcend generations, and
- they have good governance in place.
Our experience has been that if families can get these core pieces set up well, particularly when this structure is put in place early by the “first generation” wealth creators, it helps them to create that lasting legacy with their assets for their families and communities.
Does your focus on legacy creation mean you typically work only with “first generation” wealth creators?
MP: Much of the work we do is with the “first generation” wealth creators—in fact, more than half of the clients we work with today are first generation wealth creators who, as I mentioned earlier, are often still running the companies that created their wealth.
That isn’t to say that second, or third, or any subsequent generation of wealth owners can’t create the legacy they want to create with their assets. We work with a broad cross-section of wealth owners from various generations.
But there is new wealth being created all around the globe, and we bring that “blueprint” to a new generation of wealth creators all the time. We truly believe that by helping these families create their legacies, it will contribute to a better world.
Take Asia, for example. We’ve been on the ground there for 20 years, most particularly with a research focus. It is incumbent on us as good stewards of capital to make sure we are sourcing great ideas around the planet, and Asia has been a meaningful source of excellent investment ideas for our clients over the last two decades.
With that has been an explosion of wealth creation in the region as well, and a growing and developing appreciation for the value of cascading social capital across generations while preserving their financial capital today. They are looking at our clients, many established multi-generational dynasties in the US and Europe, because these newer wealth owners want to learn how they might create and sustain legacies the way those families have done.
Private clients have been evolving for some time to include social impact investing as part of their legacies. With the tumultuous events of 2020, from the global pandemic to social unrest, it seems that the sense of urgency to effect change with investments has become even more heightened.
MP: Definitely. And some parts of the world are further along in this evolution than others. In Europe, investors in general will no longer accept not factoring sustainability into investment decisions. Sustainable investing is no longer a sidebar. Much of the work we do with our clients, both private clients and institutional alike in the UK and Europe, focuses on sustainable investing.
In the past year, climate issues have literally been on our doorsteps, more recently with the California wildfires and earlier in the year with the Australian wildfires as well. The evolution of the world and humanity has hit an inflection point. The need to adjust the way we invest to ensure technology and innovation continues to support the healthy growth and evolution of our world and to not do harm while seeking returns. It’s more on people’s consciousness than ever before.
And to the extent that those of us putting capital to work are able to seek returns and—not if, not or, but and—be able to solve these large, complex societal issues? It’s a home run.
How could we not do that, right?
MP: Right. It’s a real philosophical shift. Trillions of dollars are going to be passed from one generation to the next in the next decade. And with that will likely come a big shift in how people think about investing. I believe that in our lifetimes, there will not be a distinction between “investing” and “socially responsible investing.” Investing will be socially responsible, period.
The next generation of wealth owners will have such a profound impact on the investment landscape as a whole.
MP: Yes, but it’s not only the “next generation.” Studies show that women control roughly one-third of all global wealth today—more assets today than at any time in history. More than ever, women are creating their own wealth and are driving the decision making on how they invest it. They, too, are generally more focused on investing with purpose.
Several of our women-led investment teams at CA are specifically focused on creating a network that broadens and extends opportunities and fosters community and collaboration to inspire a growing audience of engaged, dynamic women. It’s incredibly exciting work, and something I’m personally very proud of be a part of.
That’s a nice segue to my last question. On a personal note, you joined CA in 2018 to head the global private client practice. What drew you to CA?
MP: I grew up working on Wall Street at big banks. I love working with families, and I knew that ultimately if I wanted to authentically represent and steward client wealth, I needed to sit on the same side of the table as them. That meant being independent and able to focus on them alone; I needed to know that their goals were aligned with mine.
And I couldn’t authentically do that at the banks. So, when this opportunity surfaced with CA, I jumped at the chance. CA has such a strong reputation as a place that helps great institutions and private clients invest to do good in the world, and the opportunity to join and contribute to that was exciting.
Being here at CA, I know I’m able to contribute something good in the world by doing something that I can do well. It makes me excited to come to work every day. And being able to do it at a company that truly puts clients first helps make the work I do feel more authentic to who I am.
Read more about how we work with private clients to build a portfolio that is best positioned to meet a family’s long-term goals, exploring the influencing factors and special considerations that are key to successful portfolio construction for private investors and wealthy families, in Portfolio Construction: A Blueprint for Private Families.