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3 years ago, a family office in Europe hired a trader from a highly reputed bank in India to manage their family wealth after a significant liquidity event from selling the business. The corpus size was around $100 million. The family had a choice to hire a trader or a wealth manager for this role. They decided to hire the trader after hearing from him about lofty outcomes and a lower salary ask.
The trader, being a trader, when given a free hand, started making decent returns in the beginning. Over the next few months, some slippages started happening. To hide such losses, the trader started taking bigger positions without following any investment framework. When the family finally realized, they lost $40 million in wealth.
There is a great lesson to learn for family offices that have been set up in the last 10 years.
Dubai’s major financial hub, Dubai International Financial Centre (DIFC), is a core base for family offices and related entities.
As of 2025, it is reported to host around 800 family office structures/entities, growing at 30% as wealth migration accelerates.
Many new family office patrons believe that setting up a family office needs a team of experienced traders and analysts.
With significant liquid wealth, the instinct is to start trading to grow wealth. Usually, the first step is to hire a Chief Investment Officer (CIO) with a good academic pedigree and some experience in trading and analysis.
Ideally, a CIO should prepare an investment structure and methodology that aligns with the clearly defined investment philosophy before starting to trade or invest. But in reality, these tenets are ignored when initial trading results in quick gains, giving a sense of confidence that the process is strong and workable.
Only after a few months and years, when the portfolio performance deteriorates, does the realization come about, creating a foundation first before starting to invest.
Before any trade, a family office should first put the following key aspects in place:
1. Investment Philosophy (The belief system): How do we believe markets work? Where does long-term return come from?
Examples: Asset allocation drives the majority of long-term returns; risk management is more important than return maximization.; time in the market > timing the market. etc.
It is needed to keep discipline during market euphoria and panic.
2. Investment Framework (The structure): How we organize decision-making. It defines asset allocation strategy, risk assessment, rebalancing rules, and portfolio construction parameters.
Examples: Asset allocation model (strategic, dynamic vs tactical); Risk buckets, etc.
It is needed to convert beliefs into structure, to avoid ad-hoc portfolio construction, and to make risk measurable and manageable.
3. Investment Methodology (The execution process): This includes security selection criteria, asset classes, screening filters, due diligence process, and monitoring rules.
Examples: All at once or staggered; liquid or illiquid securities; regional preferences, etc.
It is necessary to remove emotional bias, avoid including unworthy products, and maintain consistency in processes.
Creating the above-mentioned structures require deep level of understanding and wisdom that comes with years of experience across various market cycles. CIOs with strong technical acumen but less than two decades of investment experience may not be in a position to create a robust structure that withstands the emotional and financial pressures that come with investing.
Finding CIOs who are not just good at investing but also have relevant years of experience in the markets could be very pricey and may not be easily available. There is definitely a shortage of talent at an affordable price for many.
Bankers in the top-class banks where the trade execution happens may help, but their advice will be coloured by their own self-interest of maximizing commissions from products for higher year end bonuses.
In such cases, an external adviser could be of great help. This adviser can work on a fixed fee to set up the foundational structures in place and regularly review to strengthen the structures further over the period of time.
Once the foundational structures are firmly established, they become a guiding force for you and for your heir after you.
For any query or discussion, you can get in touch here: https://www.truemindcapital.com/contact-us
