The average family office portfolio returned 15.5% in 2017, up from around 7% in the previous, according to a report published Tuesday from Zurich-based UBS.
“This accelerating performance was driven by family offices’ continued preference for equities in the context of a strong bull market,” UBS says in a news release.
According to the report, 28% of the total average family office portfolio is now comprised of equities, while 22% is allocated to private equity.
“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,” says Sara Ferrari, head of UBS’ global family office group, in a statement.
“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,” she adds.
Family offices typically serve business owners, executives and other professionals, as well as their families.
For the report, Global Family Office Report 2018, UBS, in partnership with Campden Wealth Research, surveyed principals and executives in 311 family offices around the world, with an average size of US$808 million assets under management.
The report finds that family offices have taken on riskier, more illiquid investments in their pursuit of yield. For example, portfolio allocations to private equity continue to increase and real estate has enjoyed a slight rebound in popularity. Looking ahead, half of family offices expect to increase their exposure to private equity in the next 12 months.
Alongside alternative investments, sustainable investing is also a growing trend at family offices. The report finds that 38% of family offices are engaged in sustainable investing. In particular, impact investing is on the rise. Nearly half of family offices (45%) say they plan to increase their sustainable investments over the next 12 months, according to the report, and 39% that when the next generation takes control of their families’ wealth, they will increase their allocation to sustainable investing.
“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,” says Rebecca Gooch, director of research, Campden Wealth Research, in a statement.
The report finds that that 70% of family offices expect a generational transfer of wealth to take place in the next 10 to 15 years. Yet, preparations for this transfer remain slow, with half of all family offices reporting that they do not yet have a succession plan in place.
“The next generation are clearly influencing family office direction and investment strategy, particularly on questions of sustainability and impact. But all too often, the underlying issue is not being addressed: families need to be much more proactive in tackling the issue of succession,” says Ferrari.