Governance

Sustaining Family Legacies: What Family Enterprises Can Learn from Asset Management Firms

Weekly Edition • February 5, 2025

Generational success in family businesses is complex, involving delicate family dynamics, aligning interests, and adapting to changing market conditions.

While family businesses often struggle to survive beyond the first generation, recent studies indicate that failure rates may be more nuanced than previously thought.¹ Continuity requires careful planning, strong governance, and a strategic focus on both the business and the broader family enterprise.

The Shift to a Family Enterprise Framework

To ensure long-term success, it is important for families to focus on value creation—financial, social, and reputational—at the enterprise level rather than solely at the company level. While the terms “family business” and “family enterprise” are often used interchangeably, they have distinct meanings. A family business typically refers to a single operating entity owned and managed by family members.² In contrast, a family enterprise encompasses a broader system, which includes various assets critical to the family’s sustained legacy.³ An enterprise-level focus provides a more holistic approach akin to managing a diversified portfolio, similar to that of an asset management firm.

Successful family enterprises tend to have a diversified portfolio of businesses, investments, and assets across industries and regions. They emphasize professional governance structures, attract top talent (family and non-family), and manage wealth beyond their operating businesses through financial investments, real estate, philanthropic endeavors, and other ventures. These enterprises operate with a long-term vision, prioritizing sustainability, value creation, and intergenerational wealth preservation. To stay competitive, they remain agile, continuously adapting their strategies to seize new opportunities and mitigate risks.

A wealth performance management system centered on value creation can enable family enterprises to operate like asset management firms. This system links equity value and shareholder returns with the enterprise’s strategy, performance, and vision, providing a comprehensive portfolio view of their assets. It helps identify value-generating businesses and individuals while phasing out those not contributing to value creation and long-term goals.

Consider the example of INICIA,⁴ a family-controlled asset management firm with deep roots in the Northern Latin America (NOLA) region. In 2007, the family set out to define an organizational structure that would support long-term, sustainable growth while remaining aligned with their vision and mission. As part of this effort, they introduced a wealth performance management model aimed at maximizing long-term value creation and delivering risk-adjusted, sustainable returns.

By systematically measuring and comparing value creation and shareholder returns across their family portfolio, they gained a clearer understanding of which assets contributed to their strategic objectives, and which did not. This disciplined approach enables them to manage risks, and to reallocate resources toward high-potential opportunities that align with their evolving vision.

Over the next decade, the family successfully transitioned to its fourth generation, increased diversification, and fully embraced a long-term value creation philosophy. This strategic evolution ultimately led to the establishment of INICIA as a family-controlled asset management firm, providing the structure, oversight, and flexibility needed to sustain and grow the family’s wealth across generations.

Implementing an Asset Management Model

To adopt an asset management model for a family enterprise, advisors can advise their clients to consider the following steps:

Conclusion

Successful family enterprises can mirror asset management firms in their approach to resource allocation, risk management, and long-term value creation. They balance short-term needs with long-term goals, utilizing rigorous financial analysis, professional governance, and diversification to optimize returns. Regular valuations are crucial in supporting continuity and intergenerational success, providing transparency and guiding investment decisions. By integrating professional management practices with a commitment to their foundational family values, these enterprises strike a balance between emotional and financial investment, securing their legacy much like disciplined asset management firms.

References

¹ Baron, Josh and Rob Lachenauer, “Do Most Family Businesses Really Fail by the Third Generation?” Harvard Business Review, July 19, 2021. https://hbr.org/2021/07/do-most-family-businesses-really-fail-by-the-third-generation.

² Clark, Edmund. “Your Family Business’s Resiliency Depends on Its Structure.” Harvard Business Review, October 4, 2022. https://hbr.org/2022/10/your-family-businesss-resiliency-depends-on-its-structure.

³ Collette, Courtney. “The Family Business and the Family Enterprise: Understanding Family-Owned Organizations through the Lens of Two Fundamental Frameworks.” Cambridge Family Enterprise Group. Accessed January 27, 2025. https://cfeg.com/insights_research/the-family-business-and-the-family-enterprise-understanding-family-owned-organizations-through-the-lens-of-two-fundamental-frameworks/

⁴ INICIA. https://inicia.com/. Accessed January 27, 2025.