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Wealth management is more than just investment advice: it encompasses a person's entire financial life. The right wealth management partner relieves clients of the complexity of financial strategies by providing investment solutions tailored to meet their individual wealth goals and risk tolerance. The combined financial and investment strategies often require planning for accounting treatment, taxation, insurance, retirement, legal issues, or estate. The wealth manager should provide a holistic approach to wealth preservation and growth.

Whether they provide a myriad of services or specialize in particular areas, wealth managers must evolve to meet the changing needs of their clients.

The Family Office specializes in growing and preserving wealth through building well-diversified portfolios across sectors and geographies.

Learn more about The Family Office philosophy

“Value investing” has long been the favored approach of wealth managers, embraced by venerable investors including Warren Buffet and many others. Briefly, it involves buying apparently undervalued stocks and waiting for the market to reprice them to their intrinsic value.

This investment approach has been reserved to the largest investors who can retain the best brokers and have the capital and knowledge that other investors lack.

In a new world ruled by technology, wealth management is breaking away from decades-long traditions as it ventures into digital transformation. As more millennials inherit the wealth of the previous generation and grow their own wealth, a younger generation of investors is emerging, who are more hands-on and demand digital solutions that fit their lifestyle. The new investors behave differently, with a more pronounced interest in investing smaller sums and the need for more control.

The investment industry has become democratized with a surge in Fintech firms that use big data and artificial intelligence to deliver market information and tools easily to the public to analyze market trends and make investment decisions independently. This has also amplified risk as markets are moved from time to time by investors who lack knowledge and experience, leading to considerable loss.

Impact of Wealth Management Digitization on Clients

Digitized wealth management provides a myriad of unprecedented possibilities at the disposal of clients, putting them in a front-row seat on their investment journey with more control over investment choices and portfolios from a much wider pool of opportunities.

Digitization can also enhance transparency with far more detailed information about clients’ portfolios and investments in general at their fingertips.

Most importantly, digitization improves user experience by providing an instant, cost-efficient service leveraging Fintech solutions, artificial intelligence, big data, machine learning, etc.

The Family Office mobile application boasts an end-to-end fully digital experience with regular portfolio updates, exclusive deals from world-leading asset managers, market insights from industry leaders, and a quick, hassle-free, paperless digital onboarding.

Learn more about The Family Office Online Platform

Since the computer revolution in the 1950s, the non-stop march of digitization has transformed nearly every sector and industry, sweeping through countless services worldwide. The wealth management industry must prepare for this new world. Digitization is not merely about operational transformation to enhance growth, cost efficiency, performance, risk management, etc. It is a business requirement for a new generation of clients that will reshape the wealth and asset management industry.

Wealth Management Breaks Away From Tradition

Founded in 2010 by a Harvard Business School dropout, Coupang has overseen the transformation of South Korea into one of the world’s fastest growing online shopping markets. Coupang came to dominate South Korean e-commerce by providing free “next-day,” “same-day” and “dawn” delivery of groceries and millions of other items through its “Rocket Wow” program.

But the success did not come overnight. Long before cardboard boxes were replaced with reusable bags and products could be returned by leaving them outside customer doors to limit the inconvenience of online orders and returns, Coupang had made huge investments in last-mile logistics centers nationwide and built the largest delivery fleet in the country. 70% of South Korea’s population live within seven miles of a Coupang delivery center. By the end of 2020, Coupang had more than 15,000 full-time drivers ready to deliver anything customers need speedily.

Lydia Jett, a partner at Softbank Vision Fund Investment Advisers, attributes the amazing success story of Coupang to its customer centricity, massive delivery network, and innovation.

Quarterly revenues grew from US$0.9 billion in Q1 2018 to US$3.8 billion in Q4 2020. 2020 revenues increased 90.7% to $11.97 billion. Net losses continue to be an issue due to the costly investments in delivery and logistics. However, net losses dropped from US$1,097.5 million in 2018 to US$474.9 million in 2020 according to Coupang, Inc. IPO Investment Prospectus S-1. 

According to CNBC, Coupang raised $4.55 billion through 130 million shares at $35 per share in the largest U.S. IPO in 2021 and among the top 25 largest U.S. listings of all time, valuing the company around $60 billion compared to $9 billion in November 2018. The share price has increased 44% since the IPO to reach $51 on 11 March 2021 after peaking to almost $64.

In an interview with CNBC, Coupang CEO, Bom Kim, highlighted that investors have always been aligned on the long-term strategy of building real value for customers. The money raised through the IPO will be invested in technology, namely the “dawn delivery” service, Fintech and robotics.

The Investment of The Family Office in Coupang

, Abdulmohsin Al Omran, CEO and founder of The Family Office, spoke about the decision to invest in Coupang alongside the BlackRock consortium in 2017 on behalf of its clients, before it became the number one player in South Korea. The decision was based on the commitment of Coupang to invest in technology and infrastructure over the long term and its customer centric culture, delivering a superior customer experience.  

 of The Family Office entails investing in promising opportunities across the world, like Coupang, to build diversified portfolios that protect and grow customers’ wealth while limiting downside risk.

 with one of our expert financial advisors to discover how The Family Office can grow and preserve your wealth.

 The Family Office Co. BSC (c) is a Category 1 Investment Firm regulated by the Central Bank of Bahrain C.R. No. 53871 dated 21/6/2004. Paid Up Capital: US$10,000,000. The Family Office Co. BSC (c) only offers products and services to ‘accredited investors’ as defined by the Central Bank of Bahrain.

Hardly anyone outside South Korea had heard of Coupang, South Korea’s largest e-commerce company, until news of its initial public offering on the New York Stock Exchange dominated business news headlines across the world. The Family Office had invested in Coupang in 2017 on behalf of its clients, long before it became a household name on Wall Street.

Coupang, A Groundbreaking Success Story On NYSE

To remain relevant, the wealth management must meet the expectations of this newer generation, especially in terms of digital solutions and services. According to Refinitiv, a leading provider of financial markets data, 68% of wealth management advisors see their biggest challenge as learning about and keeping up with new technology. They see getting ahead of the game as fundamental to growing client portfolios.

Between 2017 and 2060, around US$50 trillion worth of wealth is expected to move to the newer generation in what is arguably the largest transfer of wealth in history. According to Deloitte, the wealth transfers to the next generation have resulted in 90% of heirs changing their advisor. Their expectations must be turned into an opportunity for wealth managers.

A study by Roubini ThoughtLab has observed that almost 50% of investors are ready to work with a new asset manager if their expectations are not met. This reflects the shift of wealth from baby boomers to Gen-X and millennials, and a change in gender with more women investors acquiring responsibility for wealth management by inheritance and their own acquisition.

Essentials for successful digital transformation

According to Finextra, a leading independent newswire and information source for financial technology, understanding the basic principles of creating sustainable and smarter digital wealth management capabilities is vital to the success of digital transformation in wealth management.

: Understanding client needs is the most crucial success factor in any business digitalization. Wealth managers must develop a framework to understand customer journeys to gain insights into the challenges and solutions and develop a sustainable winning digital strategy.

: Focusing exclusively on millennials in a digital strategy is a mistake. Millennials might hold a larger portion of the wealth management client base, but all other generation clients also respond better to digital-first services. The digitization process must address the varied investment goals of multi-generational investors.

The Family Office is proud to be a trailblazer in the digital transformation of wealth management. Our new digital platform boasts numerous features that is the first in the region to offer clients this level of control, transparency and convenience at the click of a button.

The foundations for the digital journey of The Family Office were laid in 2014. The new digital platform is the fruit of more than six years of judicious effort. This platform aims to level the playing field by making exclusive private investment opportunities in alternative assets accessible to a far broader audience of qualified investors than ever before. Starting with a fully automated digital onboarding experience, clients get direct access to the best international deals, regular updates on their portfolio performance, insightful educational content, and invitations to exclusive webinars and events with industry leaders.

The Family Office Co. BSC (c) is a Category 1 Investment Firm regulated by the Central Bank of Bahrain C.R. No. 53871 dated 21/6/2004. Paid Up Capital: US$10,000,000. The Family Office Co. BSC (c) only offers products and services to ‘accredited investors’ as defined by the Central Bank of Bahrain.

The wealth management industry has undergone significant changes to adapt to shifting in demographics. As wealth management advisors and their “baby boomer” clients age,[1] the next generation of investors—generation X and Y—is gaining ground.[2] The shift in the client base has altered expectations and preferences significantly with the advent of new technologies and memories of the most recent financial crisis.

Wealth Management Takes The Digitization Plunge

1) Prices often become disconnected from fundamental value

Discover what are the 10 takeaways from Howard Marks' memo titled "Something of value".

10 Takeaways From “Something Of Value” | By Howard Marks

A time-tested truth known only to the most successful investors is that “good investment managers pay for themselves.”

There are so few professions where the expert receives payment from the profits they generate for others. This fee structure means that investors rarely spend any of their original wealth. They benefit from the service and enhanced returns without worrying about the price.

Investors who truly understand how this works appreciate that trying to save money on cheaper and less experienced managers is a false economy. Never more so than in times of recession and volatility as we’re experiencing today.

A strong strategy helps grow and preserve wealth

An investment strategy is like a ship or a vessel at sea. Any ship can sail in calm waters, like when the markets are steady. You feel safe in a humble children’s boat or dinghy. But in rough seas when waves smash against rocks and storms worsen ahead, like when the markets crash, you need a steadfast ship and an experienced captain at the helm. Strong investment managers with a proven track record navigate your wealth out of troubled waters into prosperity.

Good investment managers help grow and preserve your wealth regardless of short-term market conditions.

Without an experienced investment manager, it’s easy to panic lose sleep over market crashes. After all, your wealth is your future. It’s your key to affording an enjoyable retirement and supporting a growing family.

A survey by financial information site Bankrate

found that 48% of Americans across all members of society lose sleep over money matters from time to time. 23% suffer from financial-related sleep loss regularly. 6% of them lie awake, stressed about the stock market. 24% worry that they’re not putting enough aside for their retirement.

Nothing is more valuable than the mental well-being of you and your family. With an experienced investment manager guiding your wealth in the right direction, you can enjoy better peace of mind, which is priceless.

Investing takes time. And our time is limited. The wisest investors entrust their wealth to an expert so they can relax and spend their spare time moments in more meaningful ways.

When you engage an expert investment manager, you have more time to spend with your loved ones while your wealth grows. And when you retire or liquidate your funds, you enjoy your time even more with superior returns.

When you hand over the reigns to a trusted investment manager, you expect excellent service and superior returns. You should benefit from the decades of skill and experience of a family office and let your profits pay the costs.

Entrusting the day-to-day management of your portfolio to leading experts gives you more time to enjoy with your loved ones doing things that make you happy. You can also relax and unwind without the stock market disturbing your sleep.

Let our experienced team take excellent care of your financial needs, so you enjoy the sweeter things in life.

Survey: Surprisingly fewer people losing sleep over money issues right now

Receiving something for free is a rare pleasure in life. Imagine benefiting from a skill or gift without lifting a finger. In the world of high-end family investing, that’s exactly what you should expect… if you select the right investment manager.



Good Investment Managers Pay For Themselves

GameStop, Short Selling, and the Power of Reddit

GameStop is a video game retailer that has been struggling for many years with a declining business model that was worsened by the COVID-19 pandemic. Expecting its share price to fall, Melvin Capital, a multi-billion-dollar hedge fund, sold large amounts of GameStop shares short.

Briefly, a short seller borrows shares whose price is expected to fall and sells them at market prices. The short seller must later buy the shares back at market prices and return them to their owner. If the stock price drops as expected, the short seller profits from the difference between the selling price and the buying price. If the stock price rises, the short seller loses money.

A group of amateur investors rallied on an investment page on Reddit urging others to rescue GameStop by buying the shares that were sold short by the hedge fund driving up the share price rapidly.

At this stage, the hedge funds who had sold borrowed GameStop shares, had to buy back millions of shares at a higher price, pushing prices astronomically higher.

The financial marketplace is accustomed to battles by investors who have conflicting views about the value of a company. But mainstream retail investors bringing sophisticated institutional investors to their knees is unprecedented.

The GameStop roller coaster wiped out wealth almost as fast as it created it. Within days, GameStop stock prices dropped 81% from a peak of $483, eliminating $27 billion in market value (see chart below). Yet many small investors caught up in the frenzy the week before still think prices will improve. Others wrote off their personal losses as collateral damage in the fight against traditional Wall Street powers.

Amid the frenzy, trading platforms like Robinhood had to suspend trading in GameStop shares. Retail investors claimed the decision was due to pressure from the hedge funds shorting the stock. In a TV interview, Robinhood CEO refuted this “conspiracy theory” saying:

Our decision to temporarily restrict customers from buying certain securities had nothing to do with a market maker or a market participant or anyone like that putting pressure on us or asking us to do that. It was entirely about market dynamics and clearing house deposit requirements as per regulations.

Webull, another commission-free stock trading platform competing directly with Robinhood, also suspended buy orders briefly for GameStop, AMC and Koss shares, ascribing their decision to clearing house regulations.

Retail and small investors can now trade in shares easily using zero-commission applications and free online access to company information. This allows financially savvy small investors to trade for themselves, and novice investors to make risky bets that they do not understand.

Anyone can give “trading and investment tips” on social media platforms, causing random losses and gains to those who heed the advice. Similarly, social media influencers can sway retail investors to buy or sell shares with little understanding of either the market dynamics or the companies involved.

 has changed the rules of the game, allowing retail investors to use their collective power to shake multi-billion-dollar hedge funds with unforeseen investment behavior dynamics. Is GameStop a one-time phenomenon, or an omen of shifting investor behavior? Time will tell.

Have social media and small investors changed the investment game? An army of amateur investors left markets reeling when they declared war on multi-billion-dollar hedge funds over GameStop shares and inflicted billion-dollar losses upon them.

The GameStop Debacle

- The record contraction in GDP following the pandemic shutdown is already a major deflationary force.

- Some projections indicate a quick return to pre-pandemic output, but growth above those levels could be weighed down by heavy debt.

- Aging demographics limit the ability of the labor market to raise inflation.

Corporate leverage continues to rise despite credit spreads well below historical medians and elevated default rates. At the end of Q3 2020, last-twelve-month (LTM) leveraged loan default rates reached their highest level since March 2018 for private equity (PE)-sponsored companies, and their highest since April 2010 for non-sponsored companies (see figure 2).

Another cause for concern is the increased leverage of PE-backed companies, especially through dividend recapitalization. Debt (loans and bonds) issued to finance dividend payouts grew 25% since 2019 to more than $29 billion this year and post-dividend debt to EBITDA reached a record 5.4 times in Q3 2020 (see figure 3).

The tightening spreads and uncertain macroeconomic environment require cautious navigation of the credit cycle.

The Family Office has been applying this investment approach for the past decade. Contact us to learn more.

In 2020, central banks reached into their deep arsenal of policy tools to soften the economic and financial blows from the pandemic, marking a new extended era of quantitative easing (QE) and near-zero interest rates. The Federal Reserve (the “Fed”) plans to remain accommodative until inflation is consistently above 2%, breaking its previous policy to respond when inflation moves beyond its target range.

Navigating The Credit Environment

I don’t think so. The labor market has already staged a partial recovery as November unemployment dropped for a seventh consecutive month to 6.7% from 6.9% in October. Although this recovery appears to be slowing as restrictions on business activity have been reinstated following a surge in COVID-19 daily cases, unemployment has more than halved since its April peak of 14.7%. With the first US vaccinations outside clinical trials beginning on December 14th, restrictions could be eased again over the coming months.

There may be a slowdown, as signaled by modest annualized Q4 growth estimates due to the uptick in COVID-19 cases, but so far the economy seems to be moving along. Annualized Q3 GDP grew at an unrevised 33.1% quarter on quarter (QoQ), following a 31.7% annualized QoQ drop in Q2.

2. Is the Federal Reserve (“the Fed”) tightening?

Definitely not! In a statement last month, the Fed expressed its continued commitment to supporting the US economy through the COVID-19 pandemic. In its most recent interest rate decision, the Fed voted to maintain rates in the 0.00%-0.25% range and reiterated that it would not raise them until the labor market has recovered fully and inflation begins to run moderately above 2.0%.

However, investors would like to see the Fed explicitly state that they will buy more bonds on the long end to keep rates from rising.

In their November meeting, Fed officials discussed how they might change the program to deliver more stimulus if warranted. They will be talking more about their asset purchases (currently $120 billion monthly) at their December meeting this week, the results of which will be released on Wednesday 12/16.

So far no, as spread remain very tight despite the brief blowout post-COVID.

As of the end of November, investment grade (IG) spreads tightened to 1.12% from 1.34% in October, while high-yield (HY) spreads continued to tighten to 4.33% from 5.32% in October after peaking at 10.87% in March. First-lien spreads to maturity contracted to LIBOR + 4.32% at the end of November from LIBOR + 4.66% the previous month, while second-lien spreads contracted to LIBOR + 8.16% from LIBOR + 8.72%. The yield-to-maturity of first-lien and second-lien debt remain below year end 2019 levels due to near-zero interest rates and the unprecedented Fed support for the fixed income market.

Yes, this is the first yellow-red indicator of a potential bear market. The online trading platforms of Robinhood and Interactive Brokers both had outages last week, largely due to tremendous volumes from retail investors. These problems were the latest of the increasing technical issues among retail brokerages this year after cutting commissions to zero on most platforms, and as markets have rebounded rapidly after the sharp sell-off in the early days of the pandemic.

Call option buying is at record levels, which can lead to inflated implied volatility. As of this month, year-to-date equity option trading overall is 50% above last year on all options platforms. The unwind of these positions will not be pretty.

Valuations are moderately excessive, particularly by traditional metrics used by value investors like Warren Buffett.

Valuations are at a high based on price to earnings (P/E) and Shiller P/E (which uses an inflation-adjusted 10-year average earnings denominator), Buffet Indicator (Market Cap and GDP).

Following the rally in the S&P 500, last-12-months (LTM) P/Es increased from 34.6 times in October to 36.7 times in November, putting the measure in the historical 99th percentile in terms of US market capitalization to GDP, LTM P/E, and enterprise value to sales. The Shiller P/E remains at 33 times, its second highest since 1880 and just surpassing 1929, yet well below the 43 times at the peak of the dotcom bubble.

There is definitely a yellow light, but valuations have room to get more excessive. Also, the above metrics may prove to be outliers if the disconnect between COVID-impacted Q3 earnings and equity prices narrows over the next few months.

6. Are the “bodyguards” (banks, utilities, dividend-paying stocks, etc.) of the market underperforming?

No, the “bodyguards” have been doing well recently. Small stocks and value names are catching up with growth stocks, as the Russell 2000 Index (Ticker: RUT) increased 25.7% at the end of last week from the end of October, driven by the vaccine developments that have been propelling markets since early November.

Bank shares particularly, which have been the laggards among value stocks since the market rebound, rose more than 20% since October 28 as measured by the Financial Select Sector SPDR ETF (Ticker: XLF).

The Family Office is a Category 1 Investment Firm regulated by the Central Bank of Bahrain C.R.No.53871 dated 21/6/2004. Paid Up Capital: US$10,000,000. The Family Office only offers products and services to ‘accredited investors’ as defined by the Central Bank of Bahrain.

After an extraordinarily eventful year for financial markets and global economies, it is important to reflect on the state of the markets and the outlook for 2021. We asked Mr. David M. Darst, CFA for an update on his six-point Bear Market Checklist.

David Darst’s Bear Market Checklist

The most popular stocks have been technology names. The earnings growth of Facebook, Amazon, Apple, Netflix, Google parent Alphabet, and Microsoft was accelerated by COVID-19 restrictions, which heightened the need for phones, computers, and digital services and applications. These six stocks comprised almost 25% of the S&P 500 market capitalization and 77% of the gains in the index during the last 12 months (LTM) of September 2020.

Several factors contributed to the disparity between the performance of large-cap technology stocks and the rest of the market. Most notably, the lockdowns accelerated growth trends that were already underway. The digital transformation of economies was rushed when consumers were suddenly confined to their homes, and large-cap tech companies were ready to support their at-home activities and lifestyles.  Outside the formal technology sector, the shares of Tesla increased over 700% in 2020 as investors anticipated a faster transition to renewable energy sources following the COVID-induced turmoil in oil markets.

The relative outperformance of large technology stocks over small companies so far this cycle may be narrowing. Since reports of COVID-19 vaccine approvals in early November, small stocks and value names have started catching up with growth stocks, with the Russell 2000 Index (Ticker: RUT) rising nearly 30% between October end and year end.

Financials, a classic example of value stocks that feature strong balance sheets and consistent dividends, lagged the broader market significantly as rates dropped sharply across the yield curve in response to the pandemic while the prospect of higher credit losses loomed following the downturn. In the last two months of 2020, however, the Financial Select Sector SPDR ETF (Ticker: XLF) rose 23.6% as vaccine news revived small business borrowing, outpacing the 18% gain of the NASDAQ over the same period.

The KBW Bank Index, a composite of 24 US banks, rallied 35% in Q4 2020.  As mentioned in the article posted in late October, US banks have the highest capital levels in 80 years and, unlike their European and Japanese counterparts, their net interest margins have remained resilient around 2.50% over decades, including when short-term rates were zero emerging from the 2008-2009 financial crisis. In Q3 2020, the sector was meaningfully under-owned compared to any time in the past decade. Additionally, government support helped bridge borrowers through the pandemic, and more support came with the new stimulus package just passed in Washington.  Banks reemerged as an attractive segment with optimism for an economic recovery and further upside if the yield curve expands.

The S&P dropped 33.9% in just 23 trading days in Q1 2020. Thereafter, public equity markets staged a phenomenal rebound as the S&P 500, the Dow Jones Industrial Average and the NASDAQ Composite reached all-time highs by year end, driven primarily by growth and technology stocks. The tech-heavy NASDAQ rose 87.9% since its March lows.  Meanwhile, the broader S&P 500 and the Dow Jones Industrial Average increased 67.9% and 64.6% over the same period, as some investors considered the business models of blue-chip banks, energy producers, retailers, etc., less defensive in the post-COVID-19 world.

Articles

EducationWealth & Risk Management

Wealth Management Breaks Away From Tradition

GeneralEducation

Coupang, A Groundbreaking Success Story On NYSE

Wealth & Risk ManagementEducation

Wealth Management Takes The Digitization Plunge

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Good Investment Managers Pay For Themselves

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The GameStop Debacle

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David Darst’s Bear Market Checklist

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Shifts In Public Equity Markets