UBS report also reveals that real estate and private equity are the focus for increased allocations
Family offices are planning to increase the dollars allocated to real estate and private equity amid expectation of a global slowdown in the next year.
A report from global asset manager UBS in association with Campden Wealth Research shows that 55% of family office executives are expecting a market downturn to commence by 2020 and say that they are beginning to consider safeguards to moderate potential losses and capitalise on new opportunities.
The poll of principals and executives in 360 family offices around the world, with an average of U$917 million in AUM, also found 45% of those surveyed are currently re-aligning their investment strategy to mitigate risk or take advantage of opportunistic events (42%).
More than 4 in 10 are increasing their cash reserves, while 22% are reducing leverage exposure within their investments.
“Family offices are looking to increase their allocations to real estate and private equity, particularly direct investments which offer families greater operational control,” said Sara Ferrari, head of Global Family Office Group, UBS. “While family offices are concerned about the uncertainty in financial markets, they remain convinced that longer-term investments can deliver superior returns.”
Outperforming assets
In 2018, private equity investments outperformed with an average return of 16% for direct investments and 11% for funds-based investing. Real estate produced an average return of 9.4%.
The average family office portfolio saw an average return of 5.4%.
Meanwhile, developed market equities produced an average return of 2.1% for family offices; falling 5.2 percentage points below expectations. Developing market equities returned -1.1%, trailing -10 percentage points behind expectations.
“Family offices have been navigating volatile markets, and this is reflected in disappointing investment returns across most asset classes,” said Dr. Rebecca Gooch, Director of Research, Campden Wealth. “The notable exceptions were illiquid investments, which continued to perform well. Real estate and direct private equity actually exceeded the high expectations that were set in a buoyant market at the start of last year.”
Family offices were asked for their views on macro geopolitical, business and economic issues, with findings including:
- 63% believe that Brexit will be negative for the UK as an investment destination in the long-term
- 84% believe populism will not fade by 2020
- 87% believe that artificial intelligence will be the next biggest disruptive force in global business
- 57% think blockchain technology will fundamentally change the way in which we invest in the future
Sustainable investing
Most executives said that wealthy families will play an increasingly important role in helping to address climate change challenges with 53% citing climate change as the single biggest threat to the world.
Almost two thirds of respondents also think that wealthy families have a key role to play in alleviating economic inequality.
A quarter of all family offices currently engage in impact investing, representing 14% of these respondents’ overall portfolio on average. This figure is expected to rise to 25% within the next five years.
“We have seen family offices become much more engaged in discussions about sustainable and impact investing over the last 12 months,” added Ferrari. “This is no longer seen as a ‘side project’ or preoccupation of the Next Gen, but a priority for the family as a whole. Many products are now recognised by family offices as fully-fledged investment tools that can generate good returns.”
