UBS Global Family Office Report 2022: Family offices search for alternative diversifiers as strategic shift gains momentum

UBS Global Family Office Report 2022 sees family offices reducing fixed income allocations and increasing investments in private equity, real estate, and private debt.

UBS, the world’s leading wealth manager, today announced the launch of the Global Family Office Report 2022, which surveys 221 single family offices around the world. The report is the largest and most comprehensive of its kind, with the family offices surveyed averaging a total net worth of USD 2.2 billion.

Shift from fixed income to alternative diversifiers

The report shows that family offices globally are in a new era of strategic asset allocation (“SAA”) as high inflation, central bank liquidity and rising interest rates compel them to review their investment options. They are reducing fixed income allocations and increasing investments in private equity, real estate, and private debt, trading liquidity for returns.

In APAC, 40% plan to increase direct private equity allocations, while 18% intend to raise investments in private equity funds and funds of funds. Real estate is favoured by 26%, while 33% are turning to private debt. A third (33%) of the average family office portfolio was allocated to equities in 2021, 15% to fixed income, 11% to real estate and 2% to private debt.

Looking to the future, family offices are exploring incremental shifts in SAA, venturing further into the private markets they have been investing in during recent years. Over the next five years, 29% plan to significantly or moderately decrease investments in developed market fixed income.

“Family offices are keeping pace with a period of substantial transformation. In response to the COVID-19 pandemic, digital disruption and now a war in Ukraine, they are reviewing their options with greater urgency, as a strategic shift towards additional sources of return and alternative diversifiers gains ground,” said Josef Stadler, Executive Vice Chairman at UBS Global Wealth Management. “Against challenging market conditions, family offices see the bigger picture and are applying prudence and innovation to their strategic asset allocation.”

“Amid the turbulent macro-environment, we continue to see APAC family offices exercise strategic asset allocation to protect portfolios. With an on-going inflationary trend, it is even more important for them to prepare for volatility through adopting defensive strategies, diversifying with alternatives and investing in tech themes – such as AI, Big Data and Cybersecurity,” said LH Koh, Co-Head Global Family and Institutional Wealth, Asia Pacific at UBS Global Wealth Management. “Our holistic one-bank offerings provide clients with exclusive investment and risk management opportunities, as well as timely advice to navigate potential headwinds while growing and preserving their wealth.”

Private equity a favoured source of return

Private equity’s broad opportunity and potential to produce higher returns is popular among family offices globally. The desire of global and APAC family offices to increase allocations in private equity in the next five years have been consistently high in the last three years.

Private equity is a core risk asset across global regions. 96% of family offices in the US invest, with family offices in Switzerland not far behind, at 86%. 83% and 79% of family offices in the Middle East and APAC invest in private equity respectively. Even in Western Europe and Latin America, where private equity investment lags, participation is high at 73% and 76% respectively. Globally, among those with private equity investments, 52% investing in both funds and direct investments, an approach which allows family offices to create alpha from direct investing and spread risk through funds.

Seeking out active strategies as uncorrelated returns become harder to find

In a departure from recent years, the report shows that family offices are also seeking out more active strategies. 39% (Four out of 10) APAC family offices are either relying more on active strategies and manager selection or considering doing so. According to 18% of APAC family offices, they are also looking to illiquid assets.

66% of APAC family offices say it is hard to find uncorrelated returns in the current environment. Reflecting low bond yields, 52% of APAC family offices say they no longer think high-quality fixed income helps diversification. Just above a quarter (27%) of APAC family offices use hedge funds to diversify or are considering doing so. As the search for alternative diversifiers intensifies, 41% of APAC family offices think they’re no longer able to build a complete portfolio with long-only investments.

Sustainable investing stabilized as family offices refine purpose and objectives

53% of APAC family offices made sustainable investments in 2021. As levels of allocation appear to be stabilizing, family offices are refining their values and objectives they want to reflect. Environmental, social and governance (ESG) integration approach is the most common approach in APAC, ahead of exclusion approach, which is the most adopted option by global family offices.

Globally, 53% family offices have intensified due diligence process when looking into invest as they seek to avoid greenwashing, measure impact and define their approach.

Half of APAC family offices believe sustainable investments (“SI”) will outperform the overall market, while another third (29%) believes SI will perform in line with the overall market.

Investing in technology and digital transformation

In APAC, 86% of the family offices shared that automation and robotics is the investment theme that resonates the most with them.

Almost 8 out of 10 (79%) of APAC family offices globally say that digital transformation is another investment theme that resonates with them. This spans across e-commerce, data, artificial intelligence, the cloud and blockchain.

Full report can be downloaded from: https://www.ubs.com/global/en/global-family-office/reports/gfo-client-report.html