The newly released Global Family Office Report 2019, by UBS in partnership with Campden Wealth Research, was based on a survey of 360 family offices around the world, with an average of $1.3 billion in assets under management.
One in three family offices were found to now engage in sustainable and impact investing, while around a quarter participate in impact investing.
Almost two-thirds (65 per cent) of family offices surveyed believe wealthy offices have a role to play in alleviating economic inequality.
More than half (53 per cent) of family offices consider climate change to represent the single greatest threat to the world.
Around 19 per cent of the average family office portfolio was found to be dedicated to sustainability, with the number predicted to rise to 32 per cent over the next five years.
Meanwhile impact investing represents 14 per cent of the overall portfolio on average, with the figure expected to rise to 25 per cent within the next five years.
Sara Ferrari, head of global family office Group, UBS said she had observed family offices becoming more engaged in discussions about sustainable and impact investing over the last 12 months.
“This is no longer seen as a ‘side project’ or preoccupation of the next gen, but a priority of the family as whole,” Ms Ferrari said.
“Many products are now recognised by family offices as fully fledged investment tools that can generate good returns.”
Family offices anticipating 2020 market downturn
The majority of family offices, 55 per cent, were found to be expecting a market downturn to commence by next year – with a number beginning to consider safeguards to moderate potential losses.
Artificial intelligence was voted to be the largest disruptive force for global business, by 87 per cent of family offices, while more than half, at 57 per cent, believe blockchain technology will change investing in the future.
In macro geopolitical issues, 84 per cent of family offices believe populism will not fade by 2020 and a further 63 per cent predicted Brexit will be negative for the UK as an investment destination in the long term.
Nearly half of those surveyed are currently realigning their investment strategy (45 per cent) or to take advantage of opportunistic events (42 per cent).
Another two-fifths (42 per cent) are reducing leverage exposure within their investments.
Dr Rebecca Gooch, director of research at Campden Wealth said family offices are cautious about geopolitical tensions and there is a widespread sense that the current market cycle is approaching its end.
“While the average family office hasn’t made wholesale changes to its portfolio, many have been building up cash reserves and deleveraging their investments in anticipation of disruption ahead.
Family offices seek out real estate in volatile market
The average family office delivered a 5.4 per cent return, the report found, with private equity faring the best of all asset classes for family offices, achieving an average return of 16 per cent for direct investments and 11 per cent for funds-based investing.
Developed market equities producing an average return of 2.1 per cent for family offices, falling 5.2 percentage points below expectations as developing market equities returned -1.1 per cent, trailing -10 percentage points behind expectations.
However, the performance of real estate held up, with an average return of 9.4 per cent. Family offices also increased their allocations to the asset class by 2.1 percentage points, with real estate now accounting for 17 per cent of the average family office portfolio.
Ms Gooch said family offices have been navigating volatile markets, as reflected in disappointing investment returns across most asset classes.
“The notable exceptions were illiquid investments, which continue to perform well,” Dr Gooch said.
“Real estate and direct private equity actually exceeded the high expectations that were set in a buoyant market at the start of last year.”
“Family offices are looking to increase their allocations to real estate and private equity, particularly direct investments which offer families greater operational control,” Ms Ferrari added.
“While family offices are concerned about the uncertainty in financial markets, they remain unconvinced that longer term investments can deliver superior returns.”
Succession planning stepped up
UBS recorded a marked increase in succession planning: 54 per cent of family offices now have a succession plan in place, up from 43 per cent last year.
The report stated the average age of the next generation upon succession is 45 years old, with only 29 per cent of “next gens” being younger than 40 at the time of inheritance.
According to family offices, the most important challenges to succession include discomfort in discussing a sensitive subject matter (cited by 37 per cent), successors being too young to plan for their future roles (36 per cent) and next gens not being qualified enough to manage the family wealth (31 per cent).
“It’s encouraging to see a strong increase in succession planning,” Ms Ferrari said.
“This is an issue we have been advising our clients to prioritise for some time, and it is not easy to get right. Succession often spans a series of complex matters involving business, investments and family relationships.
“Written plans are important, but they should be considered as part of a broader process of preparing the next gen to take control. The key is to start early.”
