Risk appetite is a matter of geography
After a year of improved investment performance, allocations to equities rose even further to account for Overall, the percentage of family offices that are pursuing a growth strategy has increased from 19 per cent to 36 per cent. However, strategic asset allocations reveal a high degree of regional dispersion.
The US family offices remains particularly optimistic, with a big move to ‘growth’ allocations. Emerging market participants have cut their ‘preservation’ allocations dramatically. This indicates that the worries of 2015 seem gone. In contrast, Europe is the standout negative, with its risk-off stance demonstrated by increased ‘preservation’ allocations and a cut in ‘growth’ allocations. Compared to last year family offices in Asia-Pacific are broadly unchanged and moderate optimistic.
Succession is a looming challenge
43 per cent of family offices expect a generational transition within the next 10 years, and 69 per cent in the next 15 years, making this a pressing issue for the community. Yet just 37 per cent find that the younger generation wants to be more involved than they presently are in the family office.
This upcoming generational transfer will also have effect on the ways family offices invest. Two-thirds of family offices agree that families with children born after 1980 will see an increase in requests to participate in impact investing.
Mind the gap
Family office investment return expectations have fallen short of actual returns for almost three years. During the calendar year 2015 when portfolio performance fell to just 0.3% as many listed securities came under pressure during the period of falling energy prices and weaker global growth the gap was particularly pronounced and amounted 8.7% .
In the 2016 report there was a clear message that allocations for 2016 for real assets, private markets, and developing equity would increase with lower allocations planned for hedge funds, bonds and cash. On this basis 2016 weighted returns for year to date end August are approximately 5.5% and result in a gap of 1.6%.1*