Family offices are looking to allocate more assets to fixed income in the coming years, as well as illiquid alternatives such as private equity (secondaries). About a third of wealthy families already invest in digital assets, even if it is usually a very small percentage.
This is according to an analysis of two surveys on the investment plans of family offices. Both Goldman Sachs and UBS recently published results on this.
Goldman Sachs relies on responses from 166 family offices with invested assets of at least $1 billion per family. UBS says it surveyed the 230 largest single family offices in the world, with average invested assets of $2.3 billion.
“On the eve of a tipping point in policy rates, inflation and economic growth, family offices are planning the biggest changes in strategic asset allocation for several years,” UBS concludes based on the responses.
Enthusiasm about fixed income
What is similar in both surveys is an increasing enthusiasm about fixed income. According to Goldman Sachs, 39 per cent of family offices plan to increase their stake in fixed income over the next 12 months. “Possibly in response to the prospect of higher returns in lower-risk instruments,” the bank said.
According to UBS, this shift is already starting to take effect, wrote Head of Global Family and Institutional Wealth George Athanasopoulos in the publication’s foreword. “In particular, they plan to hold more fixed-income investments in developed markets in the coming years and are already diversifying their portfolios through short-term, high-quality fixed-income investments.”
UBS data shows that high net worth families significantly reduced their position in developed-market fixed income in 2021, and in 2022 too, more families reduced their position in bonds than increased it. Over the next five years, a net 23 per cent of families plan to allocate additional assets to developed-market bonds. 38 per cent want to allocate more to the category, 16 per cent less. It is the biggest turnaround of all categories, reckons UBS.
44 per cent want to allocate more assets to developed-market equities (12 per cent want to reduce that position) and 34 per cent want to invest more in emerging-market equities. A net 13 per cent want to reduce their cash position.
Regions
America and other developed markets are still favoured by family offices. Families surveyed by Goldman invest 63 per cent of their assets in America and 21 per cent in other developed markets. UBS writes that “almost half” of the assets of single family offices are in North America.
Where the surveys, and therefore the family offices surveyed, differ is in their planned regional allocation for the coming period. According to UBS, single family offices plan to increase their allocations to Western Europe for the first time in years. In addition, a third of those surveyed plan to increase and broaden allocations to the wider Asia-Pacific region.
According to Goldman Sachs, the majority of families actually plan to stick to the current region allocation, and in addition, 41 per cent of APAC-based family offices would actually plan to increase allocations to US companies in the coming year.
Alternatives
Although family offices still have ambitions to increase their private equity holdings, according to UBS, they seem less optimistic than in previous years, according to the bank. “Still, 41 per cent plan an increase in direct (private) investments and 35 per cent in funds of funds.”
According to Goldman Sachs, family offices have an average total portfolio allocation of 44 per cent to alternative asset classes, in contrast to other high net worth individuals who typically allocate around 20 to 25 per cent of their portfolio to alternatives, depending on their risk tolerance.
Alternatives remain a key focus for family offices, the bank concludes, not least because of the planned allocation increase. 41 per cent want to allocate more assets to private equity, 30 per cent want to do so (also) for private credit and 27 per cent plan to build a larger position (also) in unlisted real estate and infrastructure.
Bitcoin and consorts
When it comes to blockchain technology-based investments, family office investments are “only growing sparsely”, according to UBS. More than half of family offices invest in digital assets, including cryptocurrencies and distributed ledger technologies. “Yet the largest number, 38 per cent of family offices, invest less than 1 per cent of portfolio assets.”
Goldman Sachs sees the broader ecosystem of digital assets as a particularly important focus, pointing to 32 per cent of family offices investing in digital assets, with the most frequently cited reason being ‘belief in the power of blockchain technology’.
A quarter of family offices are specifically invested in cryptocurrencies, according to this survey. A year earlier, the figure was 16 per cent. However, in the latest survey, ‘only’ 12 per cent of those surveyed said they were interested in cryptos in the future, compared to 45 per cent a year earlier. “The extreme volatility of the crypto market over the past year seems to have cooled their interest,” the researchers conclude, “as 62 per cent said they are not invested and have no interest in crypto in the future, down from 39 per cent previously.”
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