With inflation high, central bank liquidity flagging and interest rates rising, family offices are reviewing their strategic asset allocation, according the new Global Family Office Report by UBS.
The report is based on a survey from 221 single family offices that collectively oversee wealth of USD 493 billion and have average assets under management of USD 2.2 billion.
“We are observing a period of substantial transformation in many areas. The COVID-19 pandemic, digital disruption and geopolitical developments are all driving profound change for global businesses and financial markets. In response to these risks and uncertainties, family offices are reviewing their options with greater urgency”, said Josef Stadler Executive Vice Chairman UBS Global Wealth Management.
He added: “A strategic shift first observed last year is gaining pace. Amid continued inflationary pressure and low expected returns, family offices are seeking both additional sources of return and alternative diversifiers.”
Family Offices are reducing fixed income allocations and sacrificing liquidity for returns, as they increase investments in private equity, real estate and private debt.
Topping their list of concerns are high and possibly persistent inflation, alongside unstable global geopolitics – all at a time when the valuations of many financial assets remain elevated.
Against this backdrop, most believe uncorrelated returns will be harder to find. As they explore new possibilities, they’re looking for alternative diversifiers including active strategies, alongside illiquid assets and derivatives.
Reviewing strategic asset allocation In one of the most uncertain periods for financial markets in several decades, family offices are reviewing their strategic asset allocation (SAA), the report said.
“A new era is beginning: the tail winds that supported asset prices through the pandemic are fading as central banks raise interest rates and withdraw liquidity against a backdrop of resurgent inflation”, it’s added.
In 2021, SAA remained stable, largely unchanged since 2019, although changes are likely in future. Approximately a third (32%) of portfolios was allocated to equities, around a seventh (15%) to fixed income and 12% to real estate. Cash was 10% and hedge funds 4%, with 2% in private debt, and gold and commodities both at 1%. Private equity was an exception – continuing its steady rise from a 16% allocation in 2019 (funds and direct investments) to 21% in 2021. Yet family offices evidently anticipate that attaining their goals will become more challenging, with over three quarters (77%) having an objective of growing overall wealth, concluded UBS.
To read the full report you have to access the following link.