Global Family Offices: Investment Allocation & Future Outlook

Over the last 10 years, the global family office space has observed an increase in number, scale and elaboration of Family Offices (FOs) despite heightened geo-political, economic and financial market turbulence. This article will explore in detail the latest performance and the future outlook of global family offices.

How did family offices perform last year?

Based on the research conducted by Campden Wealth Research and UBS, the period between the first two quarters of 2018 and 2019 saw the global average portfolio struggle to beat 9 out of 13 asset classes, with a performance coming in at 5.4%. Asia Pacific (APAC) and Emerging Markets (EMs) delivered the highest returns: both at 6.2% which is above their index benchmarks at 2.3% and 3.4% respectively. North America and Europe’s performance came in at 5.9% and 4.3% respectively.

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Diving into the asset allocations’ performance, private equity fared the best; with 16% yield for direct investment and 11% for funds-based investment. Coming in second, real estate performance sits at 9.4% and it is noteworthy that close to three-quarters of FOs have real estate incorporated in their portfolio.

Click here to explore our thoughts on the emergence of Chinese Family Offices.

Outlook Going Forward

55% of FOs surmised a recession in 2020 which saw a change in favour towards the adoption of risk-mitigation strategies, increased allocation in cash reserves and to capitalise on opportunistic events. Major economic implications and uncertainties are prevalent due to the US-China trade tensions as well as the Brexit inducing negative sentiments for the UK as a long-term investment destination.

87% of FOs are aligned on the idea that Artificial Intelligence will be the biggest disruptive force in the global business and technology topping the list as the most attractive industry of focus for direct investment.

FOs Investment Allocations / Strategies

Why Are Family Offices Engaging More in Direct Investment?

The above-mentioned performance of global family offices can be attributed to their portfolio allocations. We observe Global Equity and Private Equity taking up 32% and 19% of an average portfolio respectively. In terms of changes in allocations, real estate saw the most significant of 2.1 percentage point increase to 17% of portfolio. Alternatives is an increasing area of interest for FOs with over 40% of them having alternatives in their portfolio with the aim to search for yield and diversification. Interestingly, we observe a divestment of hedge funds from portfolios mainly due to high fees and doubts surrounding the protection of wealth during economic downturns, setting allocations at a relatively low 4.5%.

As for the general strategy adopted, majority (56%) opt for a balanced approach of encompassing both preservation and growth-oriented in their portfolios. We take the view that such an approach is sensible in times of heightened uncertainty surrounding rates and returns. Direct Private Equity, Private Equity funds and developing market equities are the three key areas FOs plan to inject more of their interest into.

With wealth succession being passed on to the younger generations, we observe increasing allocations into sustainable investing, an area widely untouched by the older generations. As of 2019, 34% of FOs are engaged in sustainable and impact investing with climate change as the top cause being supported.

We can also use Trusts to better structure family assets.

The Future Ahead

As much as wealth management is important, risk management and wealth succession processes should not be overlooked. One-fifth of FOs have knowingly been subjected to cyber security attacks and FOs are increasingly putting systems in the form of external advisory services to safeguard themselves. Proper wealth succession processes are crucial in ensuring the next generation is well prepared to take on the previous generation’s wealth and continue the family’s legacy.

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