Impact Investments and Aligning Family and Family Office Interests: Q&A With Michael Tiedemann
CEO and Founding Partner
When Carl Tiedemann established Tiedemann Advisors in 1999, he wanted to offer clients two things: the freedom to fire their trustee and the flexibility of being deeply involved in the investment planning process.
Tiedemann believed the lack of these two critical elements were the underlying reason for his own family’s experience with trustees and wealth managers since the turn of the 20th century.
His son Michael Tiedemann has spent the past the past 20 years building the business and adopting an employee-ownership framework based on the Goldman Sachs partnership model. Tiedemann Advisors now serves 400 clients globally and manages over $20 billion in assets.
Michael Tiedemann spoke with MarketCurrents about the firm’s approach, the team’s future ambitions and also shared his thoughts on impact investing and philanthropy.
What sets the Tiedemann Advisory apart?
Tiedemann Advisors is based on a partnership model. It was started to fill a void between what large financial institutions can offer and what we believe family offices need. Structured as a partnership, we can offer the same positives as any large institution while reducing the turnover of advisors and creating a long-term relationship with the families.
Would you say the loss of trust in large financial institutions and investment banks since the financial crisis has accelerated this move towards bespoke advisory services like Tiedemann?
Absolutely. We’ve been around for two major crises over the past 20 years. The first was the dot-com bubble in early-2000s and then there was the global financial meltdown in 2008. During both those periods our advisors made decisions that successfully preserved capital for our clients, proving our competence and value. We made a lot of good decisions in terms of investment and divestment to avoid a lot of the issues other investors faced. There’s no doubt that capital moves during a time of crisis and investors seek out better alternatives.
Our research indicates a growing number of family offices in Asia and a thriving ecosystem of wealth management in the region. Has Tiedmann Advisors considered positioning services in this growing market?
We would love to position ourselves in Asia. At the moment, we have a Delaware trust company as part of the organization’s structure. Having a presence in Delaware is an important component from a wealth management perspective because this jurisdiction allows for an offshore trust that enters the U.S. legal system. The company is domiciled but not taxed here.
It’s an ideal structure for foreign investors who want to store their money in dollars or have it managed in the U.S. but don’t want to be part of the U.S. tax system or be brought into the tax code as a family. That’s really important. It’s the reason why jurisdictions like Geneva and Singapore have been successful in attracting global wealth.
You’re well known for your philanthropic work, particularly regarding your association with the The River Fund, one of the largest frontline poverty centers in New York. Where do you think wealthy investors can make the most difference or have an impact today?
I think the easiest way for wealthy investors to make a difference is in their own community. They can help with the community that they see around them and in the borough or city where they live.
However, on a larger scale things get more complex. On this scale I believe technology is the key underlying driver of impact. If, for example, you see India’s efforts to link biometric data with institutional services (Aadhaar Program), that technology has helped quarter of a billion people gain access to formal banking for the first time. So the way technology can help deliver education, energy, funding, and healthcare is simply incredible.
The fact that technology can create genuine change is part of what draws me to impact investing in this space. Any chance to create a self-sustaining business that can apply an innovative technology to disaggregate a basic amenity is an opportunity for impact investors to create the most value.
So for wealthy investors, they need to balance this local effort with their global, macro impact work.
Besides financial metrics, which social metrics do you apply to measure successful impact investments?
One of the things we’ve done is turn the lens inward at Tiedemann Advisors. So we compare our processes and internal policies to the best businesses in the world to measure relative impact. I believe every business should do that sort of reflection and comparison.
From our standpoint, we want to make sure our business is conscious about the way we work, how we serve our clients, how we educate investors, how we steward the capital we are entrusted with, and the way our offices have an impact on their local community. Again, we balance the local with the global, in terms of how our employees sponsor the local charity of their choice while the organization as a whole supports large-scale initiatives.
What are the unique challenges of impact investing?
I think the biggest challenge is to find an investable solution in impact investing for narrowly-focused, passionate investors. There’s two challenges with impact investing focused on a niche space of interest – firstly, it’s time consuming to find the right manager or right opportunities in the focus area. It’s very difficult to make that a realistic part of a good business plan because of the intense staffing requirements and time constraints. Secondly, finding the right match between the investment opportunities and the desired impact is sometimes a challenge. These are not struggles that are unique to us. I believe other firms struggle with this too while impact investing.
The next generation are increasingly interested in impact investing. What advice would you give them?
I would suggest creating a diagnostic solution before you get started with impact investing. In a family, you may find that one daughter cares about a particular issue very deeply, while the other one either disagrees or cares much less about the same issue. So figuring out where those values align and how advisors or single-family offices can create an impact investment strategy that serves those goals long-term is critical.
Also, this is an ongoing process so the strategy may need to be updated or modified periodically. One of the things I’ve learned over the years is that creating an impact investment strategy provides a relevant outlet for families to talk to their children about the intended legacy of the capital parents leave behind. When the parent is successful or wealthy, it creates an undeniably unique dynamic with their children, who may have different attitudes towards money. So bringing the children into this model of thinking of the money as a family legacy is different from simply saying, “Hey Timmy, your trust is ten million dollars. Here it is. Try not to waste it.”
Investing as a family is special. We’ve helped families do that and guided them through the process and it’s really terrific to see it in action. It’s one of the reasons we started the company in the first place. We didn’t want to simply be the mother or father’s trust company. We wanted to get into the DNA of the family and help successive generations bring different values and goals to shared wealth, which is the first thing we do.
A lot of the times the wealth planning conversation happens after the parents pass. At that point the kids are simply talking to strangers about their family’s assets. That’s the challenge I faced which is why I now wish I could have been Tiedemann’s client 20 years ago and had a collective discussion with experts and my family in the same room.