Study shows: Family Offices benefit from bull market

The average portfolio returns increased significantly last year, shows the Global Family Office Report 2018 by UBS and Campden Wealth Research. Family offices continue to exert riskier investments. Furthermore, impact investing has enjoyed an increase in popularity.

UBS, in partnership with Campden Wealth Research, has launched its annual Global Family Office Report. It surveyed principals and executives in 311 family offices around the world, with an average size of USD 808 million assets under management.

Family offices benefit from bull equity market
Having returned 7% in 2016, and just 0.3% in 2015, the average portfolio delivered returns of 15.5% last year. This accelerating performance was driven by family offices' continued preference for equities in the context of a strong bull market. 28% of the total average family office portfolio is now comprised of equities. Improved performance can also be attributed to strength within the private equity space, which comprises over a fifth of the average portfolio and has delivered returns of 18% in 2017.

Reflecting this year's upward performance levels, almost half (48%) of family offices reported that their assets under management increased over the year. Sara Ferrari, Head of Global Family Office Group, UBS, says: "Family offices have delivered their strongest returns since we began measuring their performance five years ago. This reflects the bull market, as well as family offices' ability to take a long-term approach and embrace illiquidity."

"For the first time since we have been analysing this data, Asia has led the way on performance, benefiting from a relatively high exposure to developing market equities and the high number of private equity deals in the region. Following a path we've seen in other regions, we’re also seeing family offices in developing markets becoming increasingly sophisticated and institutionalised. We expect this trend to accelerate in the coming years," thinks Ferrari.

Trend towards riskier, more illiquid investments continues
The year saw a continuation of family offices' drive towards higher risk, more illiquid investments in their pursuit of yield. As part of this, nearly half (46%) of the average family office portfolio is now allocated to alternative investments.

Private equity has maintained its momentum, with allocations having increased over the year to 22%. While allocations to hedge funds have continued to slow, real estate has seen a slight rebound in popularity. After a small decline in allocations in 2016, family offices have increased their exposure to real estate direct investments to 17% of the average family office portfolio.

When asked about their investment intentions for the coming 12 months, half of family offices reported that they intend to invest more in direct investments, namely private equity. Over a third also noted that they plan to increase their allocations to developing market equities, private equity funds and real estate direct investments.

Family offices increasingly manage their wealth with purpose
Over one third (38%) of family offices are now engaged in sustainable investing. As part of this trend, impact investing has experienced a particularly significant increase in participation; the amount of family offices making such investments has increased from one quarter in 2016 to one third in 2017. The most common areas of investment are education; housing and community development; agriculture and food.

Ferrari comments: "Families of great wealth feel a deep-seated obligation to make a positive impact on the world, which is reflected in a consistently high level of philanthropic activity. The family office structure allows them to go further and translate their values into financial returns through impact investment. Yet many are still to be persuaded to cross the line from interest to action. The appetite is there, but more work needs to be done to demonstrate the investment case and create opportunities."

Impact investing will be an important space to watch over the coming years. "Our research shows that the next generation, and millennials in particular, are driving impact investing within the family office space. This is key as we are on the precipice of a major generational transition set to take place over the coming 10 to 15 years. This could result in the growth and transformation of the impact investing arena," states Rebecca Gooch, Director of Research at Campden Wealth.