June 2, 2022
Continued low interest rates have shaken family offices’ long-standing faith in fixed income. Looking forward five years, they plan to dial down strategic asset allocation to low-yielding bonds and cash. About a third (35%) intend to raise equity allocations in developed markets, more than half (56%) will do so in developed markets and almost half (42%) in private equity direct investments.
Despite economic turbulence and strains in international relations, family offices retain a risk-on frame of mind. There are no overriding concerns when it comes to geopolitics, COVID-19’s impact on the economy, rising inflation, low interest rates or high public debt. The chief concern is high valuations across asset classes, with around a quarter (26%) of family offices globally naming this as their top concern, and a higher 47% doing so in the US.
Seeking returns in digital themes and Asia: Family offices are pivoting to themes that will dominate the economy in the 2020s – including healthcare technology, digital transformation, automation and robotics, smart mobility, and green tech. This also means moving allocations to Asia’s vibrant economies, especially Greater China where 63% of respondents plan to increase allocation over five years. Family offices from Western Europe stand out as cutting back at home and tilting to Asia.
Private equity offers opportunities not accessible in public markets, according to half (52%) of family offices. 47% of family offices use both funds and direct investments, while 30% opt for direct investments only. Access and better knowledge of the underlying market are the main reason for considering an intermediary.
Sustainable investing is firmly entrenched in portfolios, as more than half (56%) globally have allocations, with family offices in Western Europe and Asia leading the way. Looking forward five years, family offices may use their flexibility to lead the way on adopting ESG integration, planning to increase the allocation to about a quarter (24%) of the overall portfolio.
Costs are rising, mainly due to spending more on wages and IT. More than a third (39%) of family offices report significant or moderate upwards pressure on salaries, and a similar percentage (35%) do for IT. The only area where costs are falling is office space, where 22% of family offices are budgeting for a fall.
Source: UBS: Global Family Office Report, 2022
