March 2015 | Customized Learning
As a grandson of a legendary retailer who was nicknamed “the Sam Walton of Brazil,” now tasked with managing some of the wealth raised in a $1.2 billion IPO in 2013, Raphael Klein seeks a maximum return on his family’s investments. But that is not Klein’s No. 1 priority.
In running the family office, Klein’s top goal is ensuring there will always be enough money to finance the charitable institute founded by Samuel Klein — a Holocaust survivor, émigré, and innovative retailer who died in November 2014, at age 91. The Klein institute is a leading funder of Jewish organizations in and around Sao Paulo, and increasingly works to reduce poverty and finance education in South America’s largest nation.
“Even though he saw the worst of humankind, he trusted humankind,” says Raphael Klein, whose grandfather survived the notorious German concentration camps at Treblinka and Auschwitz before arriving in Brazil in 1951. “He believed that you have to trust people, that sometimes people go through tough times in life and you have to help them.”
The Klein family story illustrates a broader trend in today’s Latin America. With a rapidly growing gross domestic product of more than $6 trillion, the region’s rising tide of prosperity has created new issues of wealth management. Experts say that for many close-knit, prosperous families, realizing a shared vision of wealth preservation can matter more than simply finding a financial advisor with the highest rate of return.
Raphael Amit, Robert B. Goergen Professor of Entrepreneurship at the University of Pennsylvania’s Wharton School, says establishing both a formalized system of family governance as well as strong lines of communication can be critical. “The key is the identification of shared values and beliefs, of shared culture and norms.”
In July, Amit will teach in the new Wharton Executive Education program Family Governance LATAM. Designed for high-net-worth families from Latin America and their advisors, it will help them ensure that their wealth will live beyond the entrepreneurial first generation and leave a permanent, positive legacy. Hernan Fuentes, founder of Family Business and Office School in Miami, worked with Wharton experts to develop the program, one in a series of Private Wealth Management programs for the Latin American region, after his research showed that while nine out of 10 successful businesses in Latin America are family-owned, only 30 percent of them survive to the second generation.
Experts agree that the art of governance and coordinated decision making is often more critical than the science of economics. That means establishing decision-making and communication processes that foster family harmony and happiness, along with financial prosperity, is critical for the sustainability of the family.
“What surprised me, when I entered the program [Private Wealth Management LATAM], is that I thought a lot would be about numbers — but what I learned is that it’s not all about numbers,” said Gabriel Fortes, a Rio de Janeiro businessman and son-in-law of billionaire Junior Batista from Brazil’s JBS meat-producing empire. Fortes said his family — which is now heavily invested in real estate and agriculture — is looking to move into more liquid investments in the next year or two, and so his Wharton wealth management training was an invaluable exercise.
“A family has to establish the rules of the game,” said Christopher Geczy, who is the academic director of the Wharton Wealth Management Initiative. His work with LATAM attendees begins with establishing what he calls a “total family balance sheet” so that family members will have a clear-eyed picture, going forward, of all assets and liabilities.
Klein, in running the family office called Golden Tree, said the total balance sheet has been invaluable for him in learning to understand risk management, as the family seeks to diversify its holdings after an IPO. “We don’t like to take positions in companies that we have zero control over,” said Klein, expressing his desire to control not just a fortune but a future.
Fortes agreed that “the networking was really good” at the Private Wealth Management LATAM program in Miami, adding that it was invaluable to see that other wealthy families from Panama, Mexico, and Chile face many of the same issues.
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