Poor investment performance is the top risk to long-term family wealth as ranked by survey respondents in our 2023 Four Pillars of Capital research, (Managing Risk in an age of upheaval, 2023). It is the first time in a decade that respondents identified poor investment outcomes and political risk as two of the top three challenges to sustaining family wealth. The message is that on a global level, wealthy families’ primary concern is protecting their financial capital in the face of an exceptionally difficult year for markets in 2022 following the volatility experienced during the Covid crisis.
For Southern African clients, the balance of perceived risks diverged from respondents in other regions as they ranked poor investment outcomes and political risk proportionately high and at similar levels (at 64% and 62% respectively as two of the top three risks).
No other region ranked their top two risks so highly, with the UK ranking poor investment outcomes first at 46% and failure to engage the next generation second at 36%. Europe ranked failure to engage the next generation first at 57% and poor investment management second at 51% and the Americas ranked failure to engage the next generation first at 52% and political risks and taxation second at 44%.
For an investment adviser focused on long-term relationships with our South African based clients, these results come as no surprise. The challenges for South African investors are by now well-known, including struggling state-owned enterprises and sustained unemployment, poverty and corruption in many areas. These challenges lead our clients to have long-term concerns around both political risk and potentially poor investment outcomes, as highlighted by our survey respondents. Collectively, they are the main reason we continue to advise our clients to externalise surplus assets – the proportion of a person or family’s assets not required in the next five to ten years to maintain their lifestyle and run a domestic business.
For those assets that do not fall into the ‘surplus’ category, the negative economic environment in South Africa is largely priced into the assets that stay at home. With both equities and income assets offering good value, we believe investors can expect their domestic returns to be more favourable from these levels in the near-to-mid term.
Externalising a portion of their assets affords investors access to opportunities not available in South Africa. Executed in phases and for the right reasons, this approach should dovetail with the personal objectives of the individuals or families concerned. Diversifying assets across country borders and currencies is a sound risk management principle, regardless of where you live in the world.
Reyneke van Wyk is Head of Stonehage Fleming’s Investment Division in South Africa and looks after the investment portfolios of a number of our family clients with substantial international wealth. He also chairs several family councils.
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The views and opinions expressed are for information purposes only, and are subject to change. We do not intend for this information to constitute advice or a solicitation to buy any investments or services and it should not be relied on as such to enter into a transaction or for any investment decision. It does not constitute a personal recommendation and does not take into account the individual financial circumstances, needs or objectives of the recipient. All investments risk the loss of capital. Issued by Stonehage Fleming Investment Management (South Africa) (Pty) Ltd, an Authorised Financial Services Provider (FSP No. 42847).
