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Family Offices 2017: the quest for yield pays off

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Global Family Office Report 2017: the world’s leading family office research study offers insight into performance, investments and structural issues

Key findings

  • Significant bounce back in performance driven by continued trend towards illiquid and higher risk investments in the hunt for yield
  • Nearly half are not yet prepared for looming generational wealth transfer
  • Significant growth in sustainable and impact investing expected
  • Nearly 95 percent of family offices plan to maintain or increase their commitments to philanthropic causes

Zurich, 12 September 2017 – Campden Wealth Research, in partnership with UBS, has today launched its annual report on family offices globally. The Global Family Office Report 2017, the most comprehensive analysis of its kind, surveyed principals and executives in 262 family offices with an average size of 921 million US dollars in assets under management.

Investment performance bounces back to 7 percent, driven by equities

After returning a meagre 0.3 percent in 2015, the composite global portfolio of family offices returned 7 percent in 2016. The recovery was driven by equities and private equity, which in turn were counterbalanced by the more subdued performance of real estate and hedge funds.

Equities (27 percent) and private equity (20 percent) now represent almost half of the average family office’s investment portfolio. This share looks set to grow further as most family offices plan to maintain (60.6 percent) or increase (21.3 percent) their investments into developing market equities, whilst 40.2 percent and 49.3 percent intend to allocate more into private equity funds and co-investments respectively.

Sara Ferrari, Head of Global Family Office Group, UBS AG, said: “Family offices have been making the most of their ability to embrace risk and invest for the long term, increasingly accepting illiquidity, much like other sophisticated investors. The benefits of this bolder approach are clear. North American family offices invested more than any other region into growth orientated strategies, and this strategy paid off as they outperformed.”

Rebecca Gooch, Director of Research at Campden Wealth, said: “Once again this year, we see that family offices are looking to increase their allocations to direct investing and co-investing. However, many are struggling to source interesting deals and find the right partners, and face challenges related to due diligence, as their in-house resources are often tight. In turn, some of those who are co-investing successfully told us that they source their deals through personal networks or choose to co-invest alongside funds for their due diligence capabilities. Families who wish to co-invest more may consider following similar approaches.”

Cross-regional analysis shows important variations between portfolio management strategies pursued by family offices across the globe. While those based in North America and Asia-Pacific tend to be committed to growth, executives in Europe and Emerging Markets are likely to opt for more balanced approaches.1


Figure 1: 2016 Estimated benchmark performance of global composite portfolio, by region

Figure 2: Investment strategies by region

2017

Preservation

Balanced

Growth

Europe

23.3

53.5

23.3

North America

14

36.8

49.1

Asia-Pacific

25

34.4

40.6

Emerging Market

31.3

50

18.8

Only a third of family offices have written succession plans

Last year’s report found that 69 percent of family offices expect to undergo a generational wealth transfer within the next 15 years. The 2017 report investigated this issue in detail and found that nearly half (45.7 percent) of family offices do not yet have a succession plan, although 29.6 percent of these reported that they are currently developing one. A third (32.7 percent) already have written succession plans, whilst 14.6 percent have verbally agreed, but not written plans.

Family offices are taking a number of actions to prepare the next generation. These include work experience in the family office (57.9 percent) or externally such as at an investment bank (44.3 percent), structured investment training (30.7 percent) or involvement in philanthropy or impact investing (37.9 percent). In addition, ‘family governance and succession planning’ now accounts for the largest proportion of all family professional services spend.

Sara Ferrari said: “Only 30 percent of generational transfers are successful, so this is an existential issue. What we are seeing is recognition of the challenges associated with wealth transfer, and a growing understanding of the actions that need to be taken. Family offices can play a crucial role in maintaining family unity in decision making and developing talent. The strategic role of the family office should not be underestimated.”

Sustainable and impact investing set for significant growth

Over 40 percent of family offices are expecting to increase their allocations towards impact and environmental, social and corporate governance (ESG) investments. This reinforces a finding in last year’s report that families with children born after 1980 will see an increase in requests to participate in impact investing. Of the family offices that are already active in this area, 62.5 percent engage via private investment and 56.3 percent through private equity. The most popular sectors to invest in are education, environmental conservation and energy / resource efficiency.

The average family office that manages a family’s philanthropic activities directly gave 5.7 million dollars over the past 12 months. Nearly 95 percent of family offices plan to maintain or increase their philanthropic commitments in the coming year. In terms of specific causes, environmental protection and poverty received notably more attention, climbing from 33.3 percent to 41.7 percent and 34.7 percent to 41.7 percent respectively between 2016 and 2017.

Sara Ferrari said: “We know that millennials are driving the adoption of sustainable and impact investing. As they strengthen their skill-sets and assume more control, we’ll see this theme continue to take hold. This is an opportunity for family offices to use their investment expertise to convert social objectives into financial returns and shape the purpose of a family.”
 

Figure 3: Impact investing – sectors (percent of family offices, multiple responses permitted)

Figure 3: Impact investing – sectors (percent of family offices, multiple responses permitted)

 

UBS Group AG
 

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