Inside the Family Office Investment Committee: Governance, Risk & Real-World Decision Making

Welcome to the Mac podcast. I'm your host Brian Adams. Join us every Tuesdays we dive into compelling conversations with world-class family office leaders and explore topics crucial to your success. To learn more about our show or to get connected with our firm Mac International head to www.MacInternational.com Hello and welcome back to the Mac podcast today we have another exciting panel conversation this one all around family office investment committee we have some old faces and some new friends joining us I think I've broken my record for most time zones represented in one podcast which is exciting to get a diversity of thought and experience. Let's do quick introductions and then we'll jump into the conversation if we could start with Sean and then Rodrigo and then we'll go to Mahool Joel and finish off with Vadim. Thanks Brian Sean Parking so I'm the founder and managing director of whole-road investments and the publisher of the Family Office Shirt podcast and newsletter and I see it within single family office structures here in Australia. Good morning or good afternoon depending on where you may be in the world my name is Rodrigo Garcia I'm with Tata Pataholde a global single family investment enterprise and multinational conglare we operate dozens of control holdings as was make a significant number of non-control investments across various sectors and industries and I am based in San Diego California. Good morning everyone this is Mehul Chavda I'm G3 my family office is based in India although I do not sort of you know actively manage my own single family office I'm managing another gentleman's family office here in Houston Texas and I still sit on the board of my family and we allocate heavily in alternative space. Good day I'm Joe Goss Jorke I work primarily with a single family office in the UK advice from other family offices here in the US where I am based in spite of my accent. Good evening or good morning good afternoon wherever you are my name is Vadim Doroshenko I lead the UAE outpost of a single family office with presence in the EU the UAE and the United States I sit on the single family office committee of our family as a member of our internal management team I sit on two other in a family single family office investment can each is one in Spain and one in the United States as well as a charitable organization here in the EU. Great well thank you all again for joining incredible lineup and again I love the global aspect of it should be very compelling conversation let's go in the same order that we did introductions to get us started off and where I want to begin is this formation and genesis the origination story and some of you will take this as your own family office how it developed or the families that you work with as a consultant or professional manager what have you seen to be the typical catalyst behind starting a formalized investment committee family growth complexity etc so let's start with Sean and then we'll go to Rodrigo yeah it's interesting I mean I've sat on single family office investment committees so I sit around seven currently and I would say every one of them but one I was there at the initial phase of establishing the investment committee so and the reason why they they tended to occur is we there was a decision made by the family to not professionalize I don't know if that's necessarily the term but to certainly puts in processes and rigor around the governance structure and I love governance and one of the the best ways to improve governance is to have some version of investment policy and an investment policy implementation once that's done there needs to be a governance structure that sits on top of that to monitor and measure it and to make make sure that there's a maintenance of that policy which all sounds very boring but what it means is that it allows the family to have a process it allows the family to have some rigor around the decision-making process as well as who's managing what whose roles and things like that so I would say nearly every single one of them was a decision at some point to say that yes we we want to have some process we want to have some governance structure and it's as simple as that a lot of the time we want to start this process so I'm usually there when we start the process because let's face it a lot of a lot of family offices have never had to go through this once this sort of process around getting the investment policy and getting the ISE set up when the investment committee set up so knowing what good looks like or knowing what the outcome looks like is is really what I bring to it a lot of the time so yeah it's it's usually a decision and you know my job is to help them implement it yeah those are good insights from you know I for those who may not necessarily be aware maybe listening you know I come from different walks of experience so I've been in the family office world I come from the world of institutional investment where I've worked with a number of public and private funds I've also said on investment committees for various and dollarments and foundations I say this because I've seen different structures and different processes in you know and different perspectives from investment committee members who serve on those organizations as well and and I think that for us the the genesis and the catalyst was a combination of a few things number one is investment performance I think what we all strive for in creating governance and structure and policies and processes is to ultimately be able to get a you know higher risk adjusted return and so ultimately I think the family which you know for many reasons have been successful and you know in their own right and many other regards that created the family well but in order to sustain it you need investment that hurts and investment professionals and that is and I think ultimately that's what drove the family they were content but they wanted more and I think they they definitely got more so we began this process of institutionalization and then the other aspect is as we continue to get much you know much bigger because we have been the benefactors of significant amounts of liquidity given that the source of the wealth has continued to grow in its own right and so that means that we've had become much more sophisticated much more complex we've hired many many more people and for that you need individuals not just to understand investments but understand the investments profoundly everything from asset allocation to measurement to be able as well as to be able to address aspects of sophistication that may come up you know such as you know risk risk allocation risk management or other aspects including options and futures and so forth and then the last piece that I'll mention and I think this is something that is very specific to family offices it is obviously the prevalence of new generations and the insight and input that they want to be able to have as they begin to take a much stronger we'll call it role in the governance matters of an investment committee and a family office into the future so let's continue on with Mahool Joel and then and with Vadim thanks Rodrigo Sean amazing insights since Brian who mentioned about diversity and you know different parts of the geography I'd love to just focus about like you know the origination for ourselves how it kind of came about and you know it was very informal in the beginning all the investment decision making was operating business was still alive right and my sort of you know dad really was the one patriarch in the family making most of the decision so I said was very informal quick concerns and spaces and you know decisions at dinner tables and things like that and that was really not a smart idea right like when we kind of you know learn the lesson out of it is like you should never be doing that after making a few sort of costly mistakes because you know to Rodrigo's point that it's there is merit to sort of institutionalizing the process and I still firmly believe that the family brings in the value system and the vision if you will what they want to do with with the investments but there is no sort of cutting corners around like institutionalizing the process because once it becomes like the complexity grows and the deal flow increases it's just not possible to sort of really do justice to the investment decisions without putting a structure in place so you know for us it was like just 10 years back everything got kind of formalized and the big takeaway was like you know we now have an rigorous sort of investment policy so that so the arguments kind of went away whether we are like with this or that like everyone is kind of with the same God rails like hey okay you heard us what the vision is we wanted to define this here is a policy does it fit the buckets are not right and so So the conversation dramatically changed. from conflict to one of like, or how do we make sure this is fitting most of our buckets like in? Does it hit all of our value systems? So I think that was the beauty of the whole process that we've seen. And again, you need people from the industry who've kind of done this, who kind of come and do the structuring and actually bring the due process. But again, I'm a firm believer that many times even small as smart, like in this sense, you have to, rather than having a very bloated body, just sort of making checkboxes, you'd rather have a clear defined policy, a smaller line meant of interest with folks on the board and really go forward with the decision. So yeah, that's that's a couple of my insights. So yeah, so I, as I said in the intro, I'm an in I'm a restructuring guy by trade, which means I love three things I love committees. I love risk analysis and I love checklists. So that's sort of my background. That's generally how I approach this. And yeah, I think it's often been the, there's sort of two ways where it seems to sort of turn up in my experience. A lot of it has been on the sort of foundation charitable side, where you need to have a committee because you have these separate assets, even though they're within a sort of broader family control, they need to be put, you know, there's different rules and they need to be dealt with within particular ways. And there needs to be a degree of institutional knowledge on that. You have the second problem, which is the diversification away from core business, which again, the family, maybe absolutely brilliant at, right? Absolutely, they are absolutely brilliant at because otherwise they wouldn't be a family office. So they're really good at it. And it's their core business. And now we've got so much stuff that we need to diversify away. We've got other things we need to manage. People have ideas. Next generation's coming through. And you need to be able to have those experts come in in a formal way and give that advice. And then you sort of hit that pinch point, the problem with the committee, which is what you don't want is the committee to get away with quality decision making. And I think that's often the hardest problem of sustaining quality decision making beyond simple wealth preservation advice, which fundamentally is not that different from what you get if you went to a nut, you know, and this is no disrespect to anyone. You know, you're regular sort of finite worth advisor. Nothing against them, they do a good job, but, you know, so what in a way, right? Like I don't need to be told to invest in the S&P 500. If this committee, if investment policy is going to drive actual growth, you need to have systems that enable that and risk tolerancing and to other people's point risk analysis that can really maximize that and maximize the growth that needs to happen for family offices. I think the other place where investment committees can be quite useful is in terms of education and growth for as generations come through. While younger members of the family are still, you might not necessarily want them making decisions, making all the decisions, but having mechanisms by which they can be brought on board and part of being part of their training is being on the committee. And understanding what's going on in a very granular way to the investments and so forth, I think, is incredibly helpful and hopefully leads to a situation where we don't, you don't necessarily have complete disinterest and, you know, this sort of drifting away from the core family. So I think that's sort of my five minute start point. Showing the sharper, uttered the word, the keyword here, which is governance, right? That's why it's not only me, but the principles of the family office that I have had the pleasure of serving are actually saying that investment committees or family office investment committee is a little bit of a misnomer in the sense that they do not really invest or at the end of the day make investment decisions. They are governance structures. First and foremost, as to the gene as is, family office investment committees exist more or less for the same reasons that family offices exist, which is a combination of transparency, control/accountability, and finally, last but not least, complexity. In most of the cases that I have seen, the emergence of family office investment committee is the realization by the family or the Patrick or the matriarch, A, of the necessity to replicate some best practices and need to bring best corporate management practices from the entrepreneurial world, whether they have made their initial capital. Secondly, the possibility to help the family office in general and its investment team in particular to use the Charlie Alice's expression when the loses gain. Because at the end of the day, investing is about winning the loses gain. I.e. making fewer rookie mistakes. Investors in general and single family offices in particular lose more money historically by making rookie mistakes rather than earning points on the field through investment acumen. That's why the indispensable role of the investment committee, which A, in our view at least, helps empower and help generally the internal investment management team or the outsourced investment management team. B, it ensures and is a great vehicle for next gen or family engagement in the investment process. And thirdly, bringing fresh ideas and new perspectives which can be sometimes lost in the weeds or the daily minutia. So let's start and we'll go kind of back to Vadim and then Joel and we'll go back the other way that we started here. Talk me about how decision making actually happens. When people ask me about governance, there's what's on paper and then I ask, well, talk me through the last time a really hard decision was made, what happened? And I think that's true governance in reality. So Vadim, let's start with you. What are the frameworks that you've seen on these decision makings? Is it consensus, majority? Is it, you know, one vote rules all in practice? What have you seen in your own experience? Brian, to be honest with you and you know this better than anybody else. It runs a gamut and there is no single answer and there is no single right answer because if you have seen a family office, you have seen a family office. There has to be a way which works for the family in general and not for the family or the part of the family who is currently in charge. But you also have to be cognizant of the next gen who are actually going to be adopting the family office as it is at one stage or are going to be actively, to starting to actively participate in the daily life of this, of this family office. The family offices that I have pleasure of serving have different practices to give you a couple of specific examples. The family office in the US on which investment can be, I see it, is an offshoot of legacy, single family office and they have a voting system which works for them has its pluses and minuses that are obvious disadvantages and benefits to either approach. But they have opted for a voting system but the interesting work that they use is that when it comes to voting on particular investment decisions, it's very important that during investment committee meetings you draw up in advance the list of issues that have to be voted on. They have anonymized system of voting which is instrumental in solving a lot of issues including let's put it this way, mitigating the halo effect of a very powerful, thoughtful and resourceful CIO which would not be a surprise to anyone who is on this podcast. The Spanish family which is like a second generation Spanish family, they have a completely opposite approach. They're not The main objective is achieving over a family member by in. They have, it's a very large family. Two generations of the family are participating in the works of the investment committee. That's why they have made a conscious choice about prioritizing achieving consensus. Without all family and all stakeholders buying, they're not going further. That was a long-winded answer to you. What seems a simple question is that there is no simple answer and every family chooses the way which works best for it. I would totally agree with that. I think a lot of it is very cultural and this is obviously a very multicultural podcast. My general view of it has been, my love you, is the Europeans tend to be much more consensus-based. Americans don't have a problem voting, which speaks to the culture as much as anything else but obviously within individual families. It varies and it can vary the dynamic. I think one of the most important, as I say, the issue with the committee is just making sure the committee doesn't get ahead of itself and maintains its structure properly. Otherwise, you get into this situation sometimes where you just have effectively a committee takeover by one or two members who will just drive their decisions through and you can call it, "Well, okay, it's consensus, but it's more a case of just everyone else just gave up." Rather than actual informed consensus and that can be, "Look, if they're good at making decisions, it's fine, but it's very short term because it's highly dependent." Again, if the whole point of the investment committee is to take that sort of individual problem out, if that's your view of what the investment committee is there to do, then it can be highly problematic if you're not taking care of the structures and to your point, I thought was quite, "I rather like," and I think about it again with my risk hat on. A lot of those rookie mistakes are very solvable to your point. Again, making sure the committee and it's so boring, but it's just making sure the committee has gone through that checklist. It's like, "Have we done everything? How are we sure?" Are these guys reliable that we're investing in? Is this company there? It doesn't really matter the scale or whatever, but it's that because fundamentally you can have a overarching policy. I've seen successful companies in every single sector across every single industry at every single time. I've seen failures, and more failures, to be fair, because that's my background. I've seen them both. A lot of it is, "Are you investing in the right company?" It's almost, market will help you. If we're in a real estate boom, then great. We made some errors, but we'll get through it. As markets turn tougher, it's our raw discipline and the willingness of the committee and the leadership of that committee and the family that sits above that committee. Because fundamentally, the investment committee is an intermediate platform between the family and its managing executive of maintaining discipline. If the structure isn't maintaining discipline, then the structure is wrong. I think that's how I would see it. The structure maintains discipline. If you do it by hopscotching around a room, cool. You're maintaining discipline. If once you start losing that discipline, people go, "Oh, I know this guy. Don't worry about him. You don't have to do the full DD." That's where you get the errors and that's where you get taken for millions and that's where the mind doesn't exist and that's where the company doesn't exist and that's where you hit the big, big problems. I see Mahul nodding his head and I'll let you go and then we'll finish with Rodrigo and Sean. Because I so agree with everything I heard from Baudin and Joel for sure. There's a little bit of dichotomy like they said. In America, people are very open to voting and that's kind of the process. In other parts of the country, it's a little bit of the world. It's a little bit different. I'll tell you this idea about having a community on paper and really it's just still one or two people driving all decisions. It's very, very real. That's what we found especially in interviews. Everyone kind of is very, not on the US side, I would say it's much more structured, much more vocal and a bit more disciplined. In the emerging world, it's still the attitude of like, just alright, I'm going to be still working my way through is very real. That's the reason I was talking about the investment, sort of framework and policy. We tried several different formats, nothing worked. I really want to try this anonymous thing, but that's a great way to deal with this. What we enforced was more like, hey, everyone at the table who are sitting there, if it fits the bucket and if it kind of says, is in our sort of strike zone, we have a very intensive sort of laid out structure and if it fits, after that the process really becomes at the committee level is like everyone sitting on the table has to by definition, if you have a seat at the table, you have to tell me what's going to go wrong in this. We don't want to hear about what's going to go right because then at that point for us, it's all about risk mitigation. It's everything is going to have several risks and really the idea is like is every member of the committee really bringing out different sorts of sort of, you know, what can go wrong and what kind of risks are we dealing with and how can we sort of mitigate about it, how can we think about it. So that process is working much better for us especially in India because I feel then that takes away the part of like voting or one or two people kind of swaying the decisions and things like that because now it's very sort of in a way consensus with, but it's a team spirit now, right? Because everyone is trying to think about all the risks, everything that can go wrong and then our job really is like, hey, as long as we control the downside, the upside will kind of take care of itself, right? So we're all about like protecting the downside. I just want to hop in with one point though, which is, and we've talked a lot about risk and again, risk hat. An investment committee isn't a risk committee. They're different. And if all you do is risk, your investments are going to look awful because you have to take risks in investments. And that's fine. And I, as I say, I am Mr. Risk. So like I, totally on board with the risk, but like it's an investment committee, not a risk committee. I think risk committees are really important. It's a different podcast for another day, but like the investment committee has its role and its role is to advise, is to give direction to the management of the investments, of the executive of those investments, what investments to make. And that's not the same as we're just a risk committee. And I think you always have to bear that in mind within your investment committee discussions, because otherwise, and I've been on committees, I just, nothing interesting happens. And you're okay, cool. We perform according to the stock market. And that's great. But cool, who cares? I don't need a, we can all go play tennis and we can perform with the stock market, right? We don't need to be sitting on a committee. So anyway, so that's my phone. That good point, Joel. But you know, as I said, in the US, I think so we have a good time of sort of, you know, true voting. It's just like, I think this format, especially in the Indian context, and because it was new, and it is relatively kind of coming up, it kind of just held it. And again, it's evolving. So definitely point well taken. But the idea is like at least once, and see for alternatives, right? Say for instance, that's our main strike zone. And you know, it's not like we're averse to sort of taking risks, right? We definitely take the risk. But the idea is to understand like, hey, do we fully understand what is the upside downside? And how can we sort of, you know, are these manageable risks, right? Sort of a thing. It's like averse to risk taking, but more about just thinking through like, hey, are we sort of getting ahead of anything if we can potentially be ahead of? These are all great examples. And so I'll add a couple of things. So for us based on our governance structure, it's consensus based voting across the board, even though more often than not, it ends up being united as voting overall, which really speaks to the kind of team dynamics and collaboration and trust that we have in various perspectives. I will say though, you know, the way that we have constructed this, and structured this, is we want independent perspective. We want independent perspective. to be able to apply on the investment thesis of the investments that is being considered, whether it's a fun company and so forth or a property. It's the value proposition, is it clear and is it being articulated in a way that one can assess the potential success or downside into the future, portfolio diversification, asset allocation, and so forth. So ultimately, I think the level of the committee's involvement and the level of the teams involvement, a lot of it is really dependent on the complexity and sophistication of the investment that is being discussed. It's the experience and skill set of the specific team members that are making those presentations. It's the skills and experience of the investment committee members and where they came from, when they came from the private market, the public markets, are they much more from an allocator side or have they been, you know, actual investment managers and so forth. And then there are other aspects that really where I see the types of input and the types of discussion, whether it's led much more by the teams or is that much more by the committee, because I think I've seen the differences, what we're talking about, investment in public equities and fixed income versus say venture capital and private equity, different levels of sophistication, also emerging markets versus established markets. Is it we operate under a unique modern where we're not just allocators, but we operate about 15 companies under our umbrella, and none of them are the real source of the families well. And so whether we're making investments into our operating businesses or our investment business can drive the conversation a different way, or whether we're taking on debt or derivatives, for example, also changes the conversation. But ultimately what what underpins many of these discussions is trust trust and conviction in the investments that have been made to date, the interactions between different team members, team dynamics as well as those that exist within the committee. I think oftentimes there are certain people who have bring certain amount of perspective and insight into these conversations and that tends to establish trust or time. And then obviously with investment performance continues to validate and affirm many of those discussions. And I think that's why today it has been a great kind of body that has done a lot by consensus. What all that being said, I will say one last thing, the Patriarch does hold veto rights, even though they never they've only exercised it once out of say maybe the last 100 cases of investments I have to come about. So there are oftentimes a veto that could exist, but it is hardly ever exercised, especially with conviction and trust continuing to imbue the body. I would imagine that those are by exception, not necessarily the norm. Thanks. I think this is where I might go in the different direction to most to be honest because. Do a chan. Do it. Because I mean investment committees for me is to be honest is we set the rules of the game, right? And the investment managers for whatever you want to turn them are the players of that game. And we're just making sure to a certain degree that they are following the rules and that those rules tend to be dictated within an investment policy of some description. And we don't make investment decisions really. I mean, it is when I say that there is obviously this element of I sit on investment committees where it's the family and me, right? I sit on small ones and I sit on large ones, but I love these ones because what it means is the family, the principles who made the money or beneficiaries of the money are also sitting within the investment committee, but also the investors. So when I say we don't make decisions, they do. But to a certain degree, we interrogate those decisions and make sure that they are following the rules. And I'm not interested at all in making investment management decisions because that requires skill sets and time that I'm not going to put into this system, right? So where I'm comfortable as an investment committee member, external to the family, external to the executives that sit there and external to the fair to the wealth manager of the advisor or the investment manager, whoever that might be, means that I'm comfortable that the rules are being followed. And to Rodrigo's point, they're around veto and things like that. Someone actually asked me that once before, is there a veto power in there? Well, the veto power for me is an investment policy, right? If it's in the investment policy, because we're implementing that. And then the IC is the, like I said, the group that sits above and making sure that it's actually being implemented correctly, that should be the veto. So if there's someone that says, no, we're not going to do that. We're not going to follow these rules that we've established and we've all signed off on, then we either have to change that or we have to change the investment policy. So you can change the investment policy. Absolutely. It's your money. It's your wealth. You can do whatever you want with it really. But if we've signed off and we said, these are the rules that we're going to follow and then we change it, we just have to change that. So me as an external person being comfortable, that that's the way that is being run, then that's how it tends to be. So that's, yeah, that's where I divert, you know, potentially I've gone a little bit left here when it, you know, but again, I probably sit on smaller offices potentially. I said on one larger one, but my sweet spot as an investment committee member is really again, to Rodrigo's point there, which is bringing external voice to this. And being someone that to be honest, I'm not interested in the investment management minutia. I'm interested in when you say you're going to invest in this or you are investing in this, it is doing as we've said, it should do not necessarily digging into what I've gone to you as equity is over Aussie equities or something like that. You only the only caveat to that is when it's a size, right, then you tend to have that within the investment policy when there is a decision that's over and above a certain level that again requires more of a sign off. Does it does it match what we said it was supposed to do? Yes, then, you know, not necessarily an opinion on the investment manager decision, it's making sure that the rules are being followed. Yeah, I would, I think you're right. Sean 100% I'm not I don't disagree, but I've seen the model that you're alluding to a definitely one that I've seen obviously foundations and diamonds and so forth. That I think the only caveat I would put is in certain instances, certain investment indicators, not just family offices, but jet investment, investments, allocators in general will take investment operations internal. And so for example, in our case, our family off 100 people just working on the business side. So we have a couple dozen investment professionals that that will allocate capital much much like a GP will or an investment manager will. And then we have other aspects of our allocation that are very much manager driven. And so therefore, I think the manager driven tends to be a lot easier conversations when it's the internal team that is making the recommendations. Then that's where it's slightly changes and many of the aspects that I bring to fold, then a quiet, but I don't disagree. I think part of it is what kind of operating model do you want to implement it at an office. And in this case, we've chosen to hire people with a significant expertise to lower the cost given the types of investment said or the size of the investment that we tend to make tend to be. I mean, I sit with in both, but we're still attempting to interrogate the investment manager, even if they are in general or external and even if their family or not, right. There's an element of trying to be as independently governance oriented as possible. I've sit with you in larger offices, which have like you said, the teams of people that are investing, but as the I see, our role is not necessarily to have them vote on those decisions. It's more give them the, I don't know, the agency to make decisions. And then we sit above that as a governance structure only to make sure that those decisions are being made, you know, in line with what we said that we've signed off on. But again, yeah, I mean, I think I think it will come into right, isn't it? So, you know, are you, you know, again, it comes down to governance as you would say, Sean, you know, are we going with a highly formalized structure, some sort of I mean, particularly so on the foundation side, where so well, if you're investing more than X, then the I see needs to do it if you're investing more than Y, then the main board needs to deal with it. If it's overarching policy, then it's board, if it's within the policy, then it's I see day to day management, did you say executive? Are you operating within those structures or are you operating say the smaller family office? Yeah, but the smallest and it was almost an informal I see sort of in the Patriarch with the Patriarch going, I think we should do this. And I'm going like, really shall we, shall we stop and think about this for five minutes, right? Before you go ahead and do it, right? So it can sort of run that gamut. And and to the sort of the troubling point at the start, there's no right or wrong answer as to how you want to do it. But I think I think we can all point to the errors that we don't want the avoidable errors that we don't want to see. I think that's the key thing. I mean, Marcus, we don't know a macro at the end of the day. People all fog. with far greater skills than I'll get these things wrong. Notice respect to my fellow guests, but yeah, it's hard. The, at the end of the day, what we can do is try and avoid the pitfalls. And there's a lot of pitfalls that need to be avoided, particularly once you venture out of capital markets, big public companies, big public data. As soon as you start going to all some emerging markets, all that area, there's a lot of very avoidable risks. And investment committees are very good and alternative investments, the broad, incentive investment, is a great place for family offices to operate. At the same time, it's, you know, there are a lot of very easily avoidable errors, which is why people often don't go into that area, which a family office with a good and good structure can deal with a lot of those problems. And I think that's where the IC is really, really, really helpful. And then to whip within the board of structure, it doesn't really, yeah, depends on how you want to do it, like I said. - So let's pivot to another section that's pretty closely related to this, but reporting. I hear over and over again, every time that we speak with a family and investment committee, it's, we would love to leverage technology, we'd love to have internal resources to improve our reporting. Be it internal within the investment committee itself, be it reporting to the principal, be it reporting to the family member beneficiaries, from their third party, counter parties to the third party, counter parties all the above. It seems like there's too much data and not enough actionable insight. This is my general takeaway. So I'll start with Vadim, and you can take it any way that you want, but what does good reporting look like, what does great reporting look like, how are people using technology, what's your experience been in the space? - That's a fraught question. I wish I knew the answer to be absolutely honest with you. Well, in our practice, we have a certain cadence to the investment committee meetings. And the first thing we start with invariably, we have quarterly cadence, by the way, which I think is the best practice out there, for multiple reasons, which is a separate conversation. We always start because we are in the particular single family offices that I work in, we are very much macro driven. So what the, in our cadence, what we start with is macro, the period where we have been, which we have discussed before going to where we are going, what we are going to do. And in this context, we discuss reporting. Reporting is, in many ways, a scourge of many family offices for a number of reasons. But the main is that, at least in my opinion, is that family offices, especially larger family offices, throughout a lot of disparate reporting on a whole variety of issues. And this reporting is both investment and non-investment basis. At the end of the day, the question becomes, what are you going to do with this? Because almost on a weekly basis, my principal stable lands shifts of paper with various reporting and various investments operational companies, business interests, investment proposals, and so on and so forth. How do you transform this into actionable advice? How do you go about construction of all this? Because reporting in our view in meaningless, if you cannot put it into actionable advice, or you can reasonably explain to the principal or the family what it actually means. What's the output of this? Data helps, I agree with that. But I may go out a little bit in the left field and say that data in this sense, and especially AI, although we have tried various AI tools, almost always helpful but not useful in terms of reporting or interpretation. That's why we dedicate during every investment committee session considerable amount of time, almost 25, 30% of the time, to the construction of the reporting to the principal and the wider family. And boiling it down to actionable advice, conclusions, which will then be reflected in the second part of the discussion. And in our cadence, second part of the investment committee meeting is where we are going and what we're going to be doing about this. And the investment committee meeting is the best platform and the best avenue for me to do such construction, presentation and interpretation of reporting to the principal and the family. So let's go to the who and then Joel. Yeah, so for us at least the reporting part is not what we bring up in the investment committee. But the way we do it is like yes, there are quarterly reports and then the issue becomes is when you put up like so many checks with different managers and every manager brings up like these status report in a different format and a different sort of way, right? So we almost have a dedicated sort of team like of the same fund manager who's kind of synthesizing this data into our sort of a simple one-pager format. And what we're essentially trying to do in which we didn't do in the past and still many a times as an issue is like, in a safer instance, we made a decision on investing. And then we're like, all right, this is what our target return is. And especially if I ask this like real estate and things like that, you can compare like, okay, are we tracking year one to year one? What was the underwritten pro forma versus what is the current sort of, you know, your current status, right? So if it's in the market, if it's in that bucket of plus or minus a little bit here and there, it's fine yet, we are kind of understanding and if the reporting is happening. The issue really is raised to the larger sort of investment committee when we are like, okay, this is a bad maybe a decision that hey, we are totally in the red. It's been two years now. And what should we do now? At that point in time, we are really sort of coming to the committee because our lessons been is like, you know, if you understand it's a hit, take a hit early, then kind of, you know, delete Ali and then do it five years down the road because it's worse off for your IRR and everything else. So I think that's how we've become a little bit more sort of conscious in terms of like understanding the reporting. If we talk about reporting on existing investments, again, this is partly my background, I just think about checklists and it's about rigorous and unemotional analysis of the existing investment portfolio. It's always a key part of the meeting. It needs to be done within the context of what that investment is where we think it's going or whether or not it's our decision to make. So if as, you know, to Vadim's point, if it's a an investment where the manager's making it, it's within the bound that we expect it to be and it's, you know, we can't do much about it. Well, you know, it's within the bound and it should be okay. So we'll just leave it, right? There's stuff which is as to Mahal's point, stuff that's down badly. Okay, you know, this needs to, no, ideally it should have been escalated before the investment. Yeah, it should be escalated as a matter of course. To, to members of the investment committee, I think that's kind of key separating the committee from its meetings. There are times when you just need to email the committee and go, this is now down 30%. I'm terribly sorry guys, the stock market's crashed. What do you want me to do? Yeah, there are those macro events where they can't be micro to be fair. It could be, I've invested in a startup and unfortunately the CTO's just fallen under a bus. What do we do, right? Like that, you know, yeah, get the committee out of bed and we'll have a discussion, right? So there's that side of the reporting, which I think is, and there are tools and there are electronic tools and to Mahal's point, you can have teams internally if you need the information, you know, from the separate sources sort of put into charts and formats that are consistent across the portfolio. I don't think any technology's helpful, but I don't think that's really the solution. I think the issue is making sure that you're making this passionate analysis and that's kind of the key bit where it is within the remit of the committee to do so. That's kind of the first part on the existing, then where you have critical events as I say, the CTO who falls under a bus. Okay, well, that's a risk issue. So those are things that we should be part of our analysis when we make sure that we're doing so. the original investment. And if we are panicking because the CTO has, you know, the Fallen Under Abbas, we should bet what the ideal response is, the CTO's Fallen Under Abbas, we go, "Oh dear, we know what happens in this situation. We have this final. We pull out the final and go, "This is the past. This is what we do." And that's what, when you're a good, like that's when you know your investment committee is truly running on full cylinders and is really doing its job. And you don't really know until that happens to be fair. It can be kind of tricky, but that's kind of your ideal. And then to the sort of second side of reporting, the sort of more open-ended, I think sort of that, he's sort of discussion about information flow, bring information flow into it. I like the old military, military, subruquet. The aim is to turn information into intelligence. And there's far too much information, and most of it is pointless. I used to, when I was in university, I used to read the newspaper. I then stopped, I just read the economist because it was shorter and I could read it once a week. And then I just got foreign affairs, the journal of the big international institute in Budice, and I used to read that. That was great, because that gave me all of the international news for the next two months. And then I stopped reading it because then I realized I couldn't knew what was going to happen anyway, because I'd been reading foreign affairs so much. And I knew what was going to be in it the next two months, at which point I said, well, what is information, what's important? You know, one can, obviously, let's take a real example. Obviously, the Middle East is an area in great flux at the moment of the theme of see you're there. And as I said to someone the other day, is OPEC meeting in Vienna this month? They get, yes, I said, sorry, I don't care. I don't care. If Saudi Arabia and Iran can meet once a month in Vienna to discuss oil prices, I'm really not that worried. If I'm hearing that they're not, then okay, then we'll start talking about Middle East policy. But I don't care. Sorry. That's like, that's how I think about information flows. What is actually, what do I actually have to think about from the point of view of me as like, oh, are we investing in oil companies? That's how I think about it. So let's do Rodrigo. And then this is Sean's red mead for the episode reporting is near and dear to his heart. So I'll let him finish it out. So I'll take it from three different perspectives. The first, as I mentioned, we were in the process of institutionalization across the board. So a lot actually was around and hits a little bit of a men's point around structuring data, organizing data, standardizing data, and then being able to report the data. Because there was just so many disparate information across the entire enterprise, and we have different currencies, different countries, different reporting structures, different reporting norms, different operating models, operating businesses versus investments. You have a different asset classes. You have different legal entities. And so all of this creates a significant amount of complexity and how you're being able to report and structure the information in order to be able to be able to make to synthesize that and make sense of it to be able to do comparative analysis to be able to dig deeper depending on all these different nuances. So for us, a lot of it was around these notions of structuring, organizing, standardizing, and then reporting. Then the second piece was about implementing systems to automate many of these processes. So for us, it was about implementing a system on our accounting side, the European system that was able to take it to account all these complexities across the board, not to mention even there's the investment perspective, that accounting perspective, and then the tax perspective aspect of it. And then we have to set up investment systems that captured all this information, everything from the public markets to the private markets to even our real estate and our collection that had to be tracked in terms of because we at least track art as an investment asset class. And so it was setting up our investment system. They're able to measure risk allocation and risk bucketing, but also IRR performance and volatility and risk adjuster returns and shark ratios and et cetera, et cetera, on a quarter over quarter basis, year over year basis, how it tracks against our investment budget and our investment performance of previous years, but also operational budgets and how we're spending, our operational dollars to be able to execute on a week by month quarter by quarter basis. And then now even taking into account artificial intelligence, like we have artificial intelligence that are supporting our due diligence efforts that is able to kind of go in inside our GPs, pull out the companies that we have, hundreds of companies that we now have, and and calmly the kind of the C through percentage, the geographies, the sectors, the industries, et cetera, is able to do do do do do diligence on background checks and many other things that before would take us a few weeks now we could do it get it done in days We're not hiring if anything. We've stayed pretty static because we're leveraging technology across the board whether it's some of our operational systems a better investment system and now due diligence systems and then the last piece that I'll just mention is One of which of the team alluded to and it's one that we do as well. Which is we first actually lead with our financial highlights What are the conclusions? What are the things? What are the key takeaways? And then then that's kind of like the first piece and we walked through the different ones whether it's by teams or by asset classes or by countries and Then we show the financial statements and with it and and then after the financial statements We show the investment kind of performance GP or investment by investment depending on on how we're structured and then we'll do okay Then if you want to go deeper beyond that then we'll go into you know line by line by line Usually we don't except maybe once a quarter may may be at that at best is usually once every six months Where we do with that then the financial statements is quarter by quarter and then on a monthly basis We do mostly the financial takeaways and the key highlights because ultimately that's what they're most interested in but in and You know good fashion to ensure we have good confidence Which is something that Sean has been harping on is then is much more about the key takeaways and the financial highlights and ensure that they stay in line with our Investment policy statement our investment processes etc But once in a while we do get we like to get in deeper and then and then at least once a year We have our auditors come in who have gone in poured over the information done the in the insights With the GPs made the phone calls to the banks etc to come in and provide their insights as to How reporting is working so they have the benefit of the doubt that they have a third party independent perspective beyond the team beyond the committee members To ensure that the information that is being presented and then if they have any concerns They can have that forum Without team members being present so that is kind of the way that we have structured it and but it's easier said than done because of the mile of Insights and and to some degree even the level of understanding a sophistication of The family itself. Yeah, so I mean as Brian sort of mentioned So whole road when it started seven years ago So it was really focused on this part of family offices, which is this reporting and infrastructure And it was always interesting because the the The business unit or the person that was pushing this Most heavily was the finance department and so it was it was nearly always the CFO or the people that were responsible for like we've all talked about Here the the ducks the you know swimming, you know always calm Duck head and the people that doing this bit You know the bit where it actually all the work and all the aggregation and getting all this accurate data together They're the ones we're going we can't this is not functioning and so when I think about Reporting infrastructure for the investment committee because that's the context we're kind of looking at it here I find it really challenging to sit on investment committees without some some element of This is where we're at right even if we keep it to that level of we know our exposure We know how we're tracking against the performance metrics that we've got to to everyone's point If we can have some element of what's going well, what's not are we matching what the investment policy says our our investment managers Doing their job right internal or external But ultimately, you know, we are still single family offices here and ultimately the big driver of this is going to be what is the family saying and are they saying enough? And from a compliance perspective is the finance team getting the information they need is it accurate if they're of size then they are they going to get Audited and are we comfortable with the information things like is it an investment management Reporting infrastructure and if that is investment management reporting infrastructure does that match up with our Accounting Book of Record, right Rodrigo to your point, right, which was that how does the finance team and the investment team sort of interact. So for me, I had the very basic level. And I am, you know, when I join a single family office, a lot of the time there's two big projects that I start getting an investment policy reviewed or in place, well, three, getting that implementation and then some version of how we're tracking this implementation. Like, what does business as usual look like, right? And so I think table stakes here is just getting some, it's that. Like, that's what I need. I can't sit in a quarterly or monthly investment committee meeting without some knowledge around sort of wherever exposed to what are our, they would really go to your point currency, you know, all these sort of different things. I need that. I get really anxious if I go into something and someone sends me a report and I still don't know what, I still don't know where we're at. I still don't know what managers we have. I don't know how we're performing against our CPI plus three kind of benchmark or some version of that. So I think for the topic of conversation, which is investment committees, for me to join an investment committee on be comfortable with it, I need to have some basic reporting around those metrics and also how they're pushed up to the, the principles, right? But also obviously the people managing the portfolio and the people dealing with the compliance of finance, which let's face it, that's that's almost everything because it's compliance and investments to a certain degrees is for Garzi. It's kind of pixie dust a little bit, right? You can kind of make it look how you want it to look but cash flow is cash flow. And I've worked for enough family offices to know, PNL's probably the more important component of it rather than some sort of, you know, idea around CPI level. - I mean, I think I'm gonna take, I'm gonna take the conversation to a slightly darker place, which is, leave it to the other two. - Leave it to the British guy to go negative. - I'm gonna ask Mr. Chugher, if he's the shining happy people. The Inglorious New Hampshire at the moment. The, yeah, so you also have, and this can be, within the families itself tends to be slightly less of an issue, it can be a big issue in nonprofits and foundations is the executive, is the executive investments side actually being properly monitored? And are we happy that our executive is doing their job properly? And they can fudge if they want to, particularly if the investment committee itself is not properly engaged. And that's where it can get really scary. And I'm not even talking about, fraught, I'm talking about just stuff going by the wayside people have their favorite project that they don't want to like upset their Apple card on. And everyone's very happy in their job and they're working like 10 to 4. And everyone doesn't really have to, and they're ones really looking at what's going on. And okay, the investments aren't doing too badly, but again, you can do this by investing in the S&P 500 and we can go by a tracker and sack you all. So, and you don't want, and that is scary, right? And it's making sure that that is being looked after. And we all took about trust in family offices and trust is absolutely essential within a family office structure. It's essential within any structure, but as it gets bigger, as the offices get bigger, particularly then, it's hard. And you need to, particularly when there's a disconnect, if you get a disconnect between the executive and the family, or just simply you have a big family, right? So if there's 50, 100 members within the family who have some form of input into the office, that executive starts being relatively distant. Plenty of companies work with significantly fewer shareholders, than 100. Yeah, we're talking a need to really keep an eye on, and this is where I just get better, my checklist, 'cause I like checklists. But keeping an eye on what's going on, to your point, having the right data, sure, and being able to flag it, having systems in place that go, I don't like this. We need to interrogate. And sometimes we'll need to interrogate a GP, sometimes we need to interrogate a company that we've invested, and sometimes we need to interrogate ourselves. And the investment committee could well be the first idea you have risk as well, but your investment committee could well be the first point where you're seeing this. And I think that's something that investment committee's and as I say, it's, yeah, we'd love to go, so all of this sunlight and roses, but you need to be aware of the fact that there was a big case in a few months ago in Singapore, the managers walked off with billions. So it's me and I, that's, let's, because we're running up against time, and this has been terrific. I do want to hit one more area, and we'll start with my whole, because you have this interesting seed of being a member of a family officer than serving others. How do you think about sourcing independent committee members and then compensation? And you can take it any direction you want, but then I want Vadim's thoughts on this after you. I'll start off with the sourcing side, right? And in our experience, we were very good with one, like the real estate part of alternative investment, because the family made a lot of money in that sort of business, if you will, right? So, and where we were really lacking was venture, private equity, like other forms of investing. So we tried to find people who are more complimentary in nature, who can kind of bring that real sort of, you know, investment experience to the table, and to Rodrigo's earlier point, institutionalizing the whole process is very important. So we're really looking for people who've been with large big fund managers, but also understand the processes of institution, but can also, you know, convert those things to a family office format, because it's a little bit different, right? Like all these endowments are tax-free, we do care about tax losses. So there's a, you know, we're long term minded, we never want to sell the funds, we want to sell every five years. So there is an inherent sort of, you know, key sort of differentiation in thinking, but you do value that institutional sort of process of thinking and really good investment sort of, academic, right, in complimentary nature for, for sort of actually compensation brand. There is not one sort of format, but at least what we've tried now to sort of do is sort of have everyone aligned to the success of the investments, and there are few people who are part of the team who are on the IC, versus like the external IC folks. For those guys, what we've actually done is a little bit, I don't know if it's unique or not, but it kind of works for us as what we've done is, we've kind of low, we loan them money to invest with us in the deal at market interest rate. Sort of a thing, so it's like, hey, if we make money, we are making this together, but if you lose, you're also gonna lose money with me in a very small capacity, right? But all the goal is to really have real alignment, because we feel like that's one of the key things that many a times gets missed is alignment, and then everyone for a week and come and talk and like, go away, but when you have real skin in the game, it's just a different level of care and sort of insights that you bring to the table. So those are my two cents on that. - So I've got to be a little ruthless here. We only have a few minutes left, but I wanna make sure everyone gets time. So we'll do Joel, Sean, and then finish out with Rodrigo on this conversation on Invented Committee members compensation, and again, we have to be mindful of everyone's time. - Yeah, I mean, so at the end of the day, they're spending their time to do a job. So anyone who's doing that should, as a matter of course, be compensated. How you wanna do that is gonna depend on some of the size of the assets that you're looking after, I think it's kind of a key part. Combined with a complexity of the role, to the deems point, your chair should normally receive a premium, rather as a board of directors would to be fair. And then thinking about the Invented Committee as a sub, if you think about it as a board committee of a company, which is generally how I think of them, you would expect to have members of the main board, that is to say members of the family. In there, you wanna have people who are likely to be coming up as I very strongly agree with the deem, you want people in the room who are gonna be part of the next gen. Even if they're not ready yet, even if they're still in school, even if they're only tangentially interested, that door needs to be open, they need to be able to be coming in and observing, even if they're not active participants. And then with respect to the committee, I think you've got sort of three points, and this all comes down to one thing, which is where are the gaps within your knowledge? So you can have an expertise gap, you know, it's the most obvious, oh, we're a real estate family, we need somebody who doesn't know about real estate, at least something other than real estate. Perspective gap, is everyone really gung-ho and positive? Do we need someone really miserable? Is everyone really miserable? Do we need someone really gung-ho and positive? And then lastly, a knowledge gap, which you can. and bring in as outside experts, there's often a very useful way of doing it to that Eames point, where you are within a, if you're within a family office that tends to do a lot of one thing for real estate, sort of comes to mind, something like oil and gas, would be another, it is well worth. I would certainly be looking at bringing in serious outside experts in that space, be they sort of university professor level people who can come in, talk to the board, potentially just educate the board, it might be worth bringing them in once a quarter to just do a lecture to the board on what's going on and we have the professor, you know, the head of the oil extraction from you, from Imperial College comes in once a quarter and you know what, we'll pay his flights and he can come over and stand a lovely hotel and we'll pay him to talk to us. And that's worth it because, you know, we have billions of dollars in oil and gas and God, we don't want it to go wrong. So, or it could be simply, you know, yeah, we need someone who's institutional and ex-banker in that space, something like that, an ex-consultant in that space on a more, for a more day to day look, bringing that sort of more day to day expertise into the board. And finding that balance is just going to depend on the nature of the family office, but I think it does come back to that point of where is the gap, how do I fit it? - Yeah, I think the gap part is probably the biggest one for me. So, I mean, we do see a lot of generalists coming to this space in investment committees because they can, I mean, without talking my book, but my role all the time is to be that generalist and to find specialists when we need outside expertise to Joel's point, right? If we had that, we tried to keep it small, I think the next generation is just such a massive thing. If I see any next generation, you know, anyone interested in it, I tend to be a little bit too over the top and try to grab them and try to keep them in the room when we have these investment committee meetings just so we can start to get some of that osmosis and education through it. But I think we've covered it fairly heavily here, but gaps, you know, just skillset gaps and having some independence to Vadim's point, right? To someone that can actually sort of go, well, you know, the critical friend or whatever you want to call the right, the person that just says, well, I'm not here for the transaction, I'm not here because I'm an executive, I'm not a family member, but I can certainly just sort of go, well, I'm the king of the dumb question. Like, that is my thing, right? I don't understand. I don't understand why we're doing this. Like, just having that ability to just sort of go, well, I've no dog in this fight. I'm just really curious around why we're doing something in a certain way. So I think we've covered everything, but I think, you know, that's my two cents anyway. So I will provide a couple of additional insights. So around sourcing the independent members, obviously there's always our good friends at the recruiting firms who can bring about a significant amount of expertise and experience to the table. And then there's obviously also family office networks that you can tap into, especially people who have done this before and understand what it is to be in these type of groups and these type of organizations. But for me, ultimately what's going to be the most important, whether you're going through the networks or through the recruiting firms, I usually prefer recruiting firms, is someone that is truly independent. Someone that is not just going to count, that is not just a family member's friend or someone that they work with, is someone that is truly independent and then even if they're recruited, someone that doesn't have businesses that can create conflicts of interest and ensure that true independence within the committee. And then they have to be trustworthy individuals, obviously because of the type of information that we're dealing with, we're talking about a specific family or specific family members who provide certain insights and perspectives or even in certain cases, certain fears and certain aspects of Tartau Void. And we need people who are trustworthy, who can understand what it is. And you would think that that's necessary the case, but most people think because of the size of the organization or the more colloquial aspect of an organization that it necessarily can imbue informal conversations. We would want committed individuals, people who take the time, do their pre reads, look at the information packets before the meeting and compare pair to have these conversations, not necessarily be briefed at these committees and try to get up to speed at that moment in time. And we want people who are diversified across asset classes. They don't have to be an expert or even have some knowledge in every asset class, but we try to ensure by creating board matrices, including for the investment committee to ensure we have at least to the broad degree possible diversification across asset classes. If not, then that can curve with Joel's point, which is then be bringing advisors for those areas that we don't have aspects, we bring an advisor, which is different from the members of the investment committee to ensure to be able to complement and provide some additional insight that we may not necessarily be present. And then in terms of the compensation, obviously I think we all agree that has to be compensation. For us, it's pretty straightforward. It's cash for the short term for the time that they're spending and then it's equity when it comes to the long term incident and it could be dependent on public or private could be carried or it could be some aspect of the profitability between the public side. But more so than anything, it has to be realized, not unrealized. It has to be realized to ensure that those evaluations are locked in because for us at the most fundamental piece and the most underlying point is that we have to align incentives long-term incentives to ensure that people are properly motivated to give us their best and in a very persistent manner going forward. So just a few insights to kind of round out the question. - Robby's got the checks in the mail for the reference to recruiters. I appreciate the shout out. I'm gonna have to close it out because we're up against time. But thank you all, this was terrific. We'll have to do a part two 'cause we only got to half the questions that I wanted to. Thank you for sharing your wisdom and experience. Let's talk soon. Thank you again. (upbeat music)