UBS 2022 family offices report: shifts in strategic asset allocation

Article content

Family offices globally are eyeing more investments in private equity, private debt and real estate, according to global wealth manager UBS’s Global Family Offices Report 2022 released last month, which calls it a “new era of strategic asset allocation.”

The report surveys 221 single family offices – averaging a total net worth of US$2.2 billion – from around the world.

Higher inflation, central bank liquidity and rising interest rates are named as the catalysts behind this new strategy, which has many “sacrificing liquidity for returns,” according to the report, by reducing fixed-income allocations and increasing investments in private equity, real estate and private debt.

The current environment also has family offices turning to more active strategies as uncorrelated returns become harder to find.

Half (50 per cent) are either relying more on active strategies and manager selection or considering doing so. Almost three quarters (71 per cent) of family offices say it is hard to find uncorrelated returns in the current environment. Just under a quarter (23 per cent) of family offices use hedge funds to diversify or are considering doing so.

The number of family offices jumping into private equity has risen over the years to 80 per cent in 2022, up from 77 per cent last year and 75 per cent in 2020. In the United States, 96 per cent of family offices invest in private equity.

While 42 per cent of family offices surveyed said they plan to increase direct private equity allocations, 38 per cent intend to raise investments in private equity funds and funds of funds.

In terms of portfolio allocation, private equity continues to rise there, too, with the average family office portfolio citing 21 per cent in 2021, up from 16 per cent in 2019. Private equities was 32 per cent of portfolio allocation, 15 per cent went to fixed income, 12 per cent to real estate and 2 per cent to private debt.

While some family offices have looked at or are actively investing in cryptocurrencies (26 per cent), more than half (56 per cent say) they are doing so to find out more about the technology. The same goes for distributed ledger technology (decentralized systems for recording transactions, including blockchain) where 35 per cent of family offices are already investing or are considering jumping in.

Family offices’ approach to sustainable and impact investing is maturing, with increasing due diligence to avoid greenwashing, though exclusions remain the most common tool.

In terms of running their offices, family offices expect costs to rise in the next three years as they compete for qualified staff to manage strategic asset allocation, risk management and financial accounting and reporting. Technology costs are also expected to rise, with more need for software and cybersecurity.

“Family offices are keeping pace with a period of substantial transformation. In response to the COVID-19 pandemic, digital disruption and now a war in Ukraine, they are reviewing their options with greater urgency,” said Joe Stadler, executive vice chairman at UBS Global Wealth Management. “Against challenging market conditions, family offices see the bigger picture and are applying prudence and innovation to their strategic asset allocation.”

Please visit here to see information about our standards of journalistic excellence.