The new team at the helm of Australia's leading family office are warning clients to temper expectations for returns and focus on getting the right structures in place before committing to new investments.
Dr Drew, a professor of finance at Griffith University and investment committee member of the $59 billion Q Super, says that even the ultra high net worth segment MFCo services needs to prioritise outcomes over benchmark returns.
"This game is getting harder, it's getting hard to achieve high rates of single digit rates of return and those who achieve that are really pushing the boat out in terms of risk to achieve those outcomes," Dr Drew said.
The environment of lower returns is also placing pressure on philanthropic vehicles that aim to deliver returns in perpetuity.
Charities that operate as a private ancillary fund (PAF) are required to distribute 5 per cent of the fund's value each year, which means a few years of bad returns can put a great big dent in such funds or even threaten their viability.
With links to the wealthy Myer dynasty that began with Sidney Myer who emigrated from Russia in 1899, the firm counts more than $7 billion of assets under administration and manages the wealth of 150 families and 60 charities.
Same concerns
While the bank balances of MFCo's clients are different from those visiting the average wealth manager, their worries are much the same. Investment risks, generational change and the impact of the Trump presidency are among those that are front of mind.
"There is a natural degree of concern, the same concerns that most people have around the erratic nature of the administration and the consistency of the policy. The more socially orientated are concerned about the social cost," Ms Press said.
Developments like Brexit and the US election have served as a reminder to MFCo clients that geopolitical risk is not just another slide on a presentation deck. It's a real threat to family wealth that may have survived multiple generations.
As investors creep up the risk curve to offset lower returns, Ms Press says there is no question that some of them will fail because they haven't accounted for how the incremental differences in risk add up over time.
"There is stuff out there that is going to blow up as investors move up the risk curve if governance does not catch up," she said.
Impact investing
Impact investing – which pairs philanthropy with measurable outcomes and a return on investment – is one example of the type of investment options that MFCo is getting a lot of inquiries about from clients.
It is estimated around $2 billion has been invested in such schemes.
As a nascent area of investment MFCo believes that the governance structures behind some of the models they have seen are not mature enough and that each opportunity needs to be studied carefully and in isolation.
Dr Drew's academic credentials – he is the author of a a number of papers on lifecycle investing and has been cited everywhere from the Cooper Review to US Senate hearings – were among the many reasons MFCo sought him out.
However, Dr Drew has considerable experience at the investing coalface too. As the general manager of investment at Q Super during the GFC he had plenty of sleepless nights.
"When you can see the whites of the investors eyes, the impact of a good or bad investment decision on those teachers and nurses was incredibly real. That's when you really begin to understand that people don't live off the returns that are advertised on the back of a bus shelter somewhere," he said.
