Case Study: Building an enduring partnership with entrepreneurs after the sale of their business

Over the course of 35 years, Laura and Ian Duncan turned a unique opportunity they saw in their industry into a privately owned global enterprise. As they approached their 60s, they were ready to step away from the business to focus on new pursuits, and Laura particularly wanted to devote more time to helping women around the world achieve their entrepreneurial dreams.

CLIENT BRIEF

• Client: Ian and Laura Duncan
• Source of wealth: Global enterprise
• Situation: Liquidity event
• CA relationship: Non-discretionary portfolio management

The couple decided the moment was right to sell the business and arranged a $500 million cash sale, retaining a 5% stake to ensure a smooth transition to the new owners. They relied on Richard, their long-time business accountant and trusted friend, to help identify the right investment firm to manage the proceeds.

CLIENT NEEDS

The Duncans came to Cambridge Associates looking for a stable, fully resourced investment organization with a strong commitment to partnership. Their ultimate goal was to delegate management so they could pursue their personal interests. However, much as they had done with the sale of their business, they wanted to maintain some involvement so that they could feel comfortable with the firm and the investment process.

As with many successful business owners, the Duncans’ expectations drew heavily from the management approach and values they brought to their own company, and included:

• Quality Ideas and Service: They had been leaders in their field—they expected investment ideas and service that were top notch and matched their high standards.
• People and Accountability: They not only wanted a firm that provided objective advice but also a relationship with experienced investors who would be focused on the family’s best interests, accountable for decisions, and who included Richard as part of the team.
• Transparency and Ownership: A previous advisor had invested the Duncans’ assets in the firm’s proprietary venture fund without fully disclosing its restrictive exit terms. The fund also had disappointing performance. With this experience in mind, ownership of their assets, and visibility and influence into decision making, were essential.
• Risk Control: Having dedicated decades to building their business and taken great financial risk along the way, the Duncans wanted a portfolio strategy that minimized risk and offered greater peace of mind.

OUR SOLUTION

We understood from the outset that, for the Duncans, the quality and nature of our partnership was as important as meeting their investment objectives. Christine, a Managing Director with CA, kept this in mind as she took lead responsibility for the relationship and for directing the work of the Duncans’ dedicated investment team.

To begin the partnership, this team worked with the couple and Richard to formalize governance parameters for the relationship. They then developed an investment strategy that aligned with the Duncans’ risk and return objectives.

Understanding our clients’ low tolerance for risk, we agreed that a relatively conservative return target should be maintained in Year One, and that the team would build—as the foundation of the strategy—a portfolio focused on core protection and growth. This was expressed as the phase 1 portfolio strategy. This strategy was then documented in the Duncans’ Investment Policy Statement, which summarized goals, risk tolerance, and return expectations, as well as the portfolio strategy and governance parameters.

We then arranged for Ian and Richard to join their CA team to meet with active equity managers in our network and included them in the rigorous process we use to select the most appropriate candidates for investment. With specific strategies and managers confirmed, and as a further risk mitigation measure in light of market volatility, the investment team developed an implementation plan that would deploy cash over several quarters.

After the first annual review meeting with the family and Richard, the Duncans confirmed their level of confidence in the program. They also concluded that reaching for higher return was within their reassessed risk tolerance range and would enable them to more fully realize their future philanthropic and legacy intentions. With that in mind, the CA team recommended both building out the core protection and growth component and introducing diversifying investments, including hedge funds and a small private investment allocation. In recommending this phase 2 plan, the team also explained how the Duncans would retain full ownership of the assets in their private investment portfolio, as opposed to what had occurred with their previous advisor’s fund. Consistent with established governance practices, Richard and Ian were then involved in meeting with all new manager candidates.

In a subsequent discussion, the Duncans confirmed their comfort level in moving to phase 3, which involved further deploying some of their remaining cash into a 15% allocation to private investments, to be achieved over a three-year timeframe.

OUTCOME

The Duncans were very pleased with their phased approach. It gave Richard and the Duncans an opportunity to gain a deeper understanding of each component of their investment strategy and how it contributed to the whole, and helped strengthen the bonds of trust necessary for an enduring partnership.

Five years later, the portfolio strategy remains aligned with the investment objectives. It has preserved the family’s capital and delivered steady growth through periods of economic expansion, market volatility, and global uncertainty. Through ongoing communications, the CA team has developed a true partnership with Richard and the Duncans. Richard and Ian continue to participate in periodic meetings with our network of global managers to discuss macro trends affecting the economy and how manager ideas could best serve their investment program. Laura is now spending most of her time spearheading multiple initiatives to identify, mentor, and support the next generation of women entrepreneurs.

This narrative has been fictionalized to ensure anonymity, but is based on actual client work.