Family offices to hold fire and watch for opportunities amid dislocation

As the coronavirus crisis tears through the economy, family offices, ultra-high-net-worth investors and their advisors are pausing to see how things play out before adjusting their portfolios.

“The nature of private investing is that you are investing for the long term, you’re aligning interests, you’re not worried about quarterly fluctuations and pressures, and it’s about long-term value maximization for the most part,” said Avy Stein, founder and co-chairman of Cresset, a multi-family office based in Chicago.

Stein told Buyouts the vast amount of Cresset’s clients—made up of about 350 families—have portfolios that are diversified enough that the recent chaos in the public market has had minimal effect. Cresset’s public and private markets services focus on goals-based investing, he said.

“You mathematically create a scenario where your asset allocations give you a 90 percent confidence that capital will be there in whatever period of time you’re trying to look at,” Stein said.

Christopher Zook, chairman and CIO of CAZ Investments, a multi-family office based in Texas, said most people he had spoken to were well-prepared for a market downturn—a difference he sees from the 2008 financial crisis, when many investors were hit hard from overexposure to asset classes like private real estate. “Everyone by and large has learned the lessons of the past and been diversified across asset classes,” Zook told Buyouts.

Stein stressed investors should be mindful of “cash flow and runway.”

“If you’re in the private markets in a very growth-oriented business that is dependent upon a set of market assumptions that have changed dramatically…something like restaurants or airlines…obviously unless you have a strong balance sheet and enough cash runway, that could be an existential threat,” he said.

But, Stein said, for the most part investors seem aware of the potential upside.

“I think there’s a recognition that this too shall pass and there will be some pent-up demand, and depending on what the business is, some revenues will be lost, some time will be lost but the ability to get back on a reasonable trajectory still exists,” he said.

“The most important thing is to have a plan and stick with the plan,” Zook said.

He stressed investors should not try to make wholesale changes quickly, but instead make slow, incremental steps.

“Nobody knows how this is going to play out,” he said. “Let’s not shoot all our bullets at one time.”

Action Item: Read Cresset’s form ADV here and CAZ Investments’ here.