FAMILY OFFICES PREPARE FORT MARKET DOWNTURN / THE FINANCIAL TIMES

Family offices prepare for market downturn

Advisers who handle wealth of super-rich fret over threat of global recession

Chris Flood


Family offices have doubts about hedge funds’ ability to protect wealth during downturns, says UBS's Sara Ferrari © SEBASTIEN NOGIER/EPA-EFE/Shutterstock


Family offices, the advisers that invest the wealth of the super-rich, are preparing for a downturn in financial markets as concerns mount of a looming recession.

UBS, the Swiss bank, and Campden Wealth, a data provider, surveyed 360 family offices and found that 55 per cent expected the global economy to sink into a recession before the end of 2020.

Tensions between the US and China were cited as a concern by more than 90 per cent of those surveyed while almost two-thirds said Brexit would not enhance the UK’s appeal as an investment destination.

The 360 family offices generated an average return of 5.4 per cent over the 12 months ended May, weighed down by disappointing performances from their holdings of publicly traded equities in developed and emerging markets.

“Family offices have been navigating volatile markets and this is reflected in disappointing returns across most asset classes. The notable exceptions were illiquid investments which continued to perform well,” said Rebecca Gooch, director of research at Campden Wealth.

Alternative investments, such as private equity, hedge funds and real estate, already account for about 40 per cent of the average family office portfolio, a significantly higher share than among public pension funds.

Allocations to alternatives are set to increase further. A net 39 per cent of respondents said they anticipated a rise in direct private equity investments in 2020 and a net 28 per cent expected to increase their exposure via private equity funds. Real estate also remains an attractive proposition for family offices with a net 16 per cent aiming to raise direct property holdings in 2020.

“Family offices are looking to increase their allocations to real estate and private equity, particularly via direct investments which offer greater operational control. While family offices are concerned about the uncertainty in financial markets, they remain convinced that illiquid longer-term investments can deliver superior returns,” said Sara Ferrari, head of the global family office group at UBS.

The appeal of gold has also risen with a net 12 per cent expecting to increase their allocation to the precious metal next year.

Hedge funds, however, have continued to struggle to win new admirers among family offices. Allocations to hedge funds have been reduced for the past five years and no net new increase was anticipated in 2020 by the survey’s respondents.

“Family offices have doubts about hedge funds’ ability to protect wealth during economic downturns. They also dislike what some deem to be relatively high fees when compared to performance,” said Ms Ferrari.

At the same time, sustainable and impact investing strategies that attempt to deliver social or environmental benefits along with financial returns are expected to play a more significant role in family office portfolios.

Around a third of family offices already engage in sustainable investment strategies. These existing investors are expected to increase their average portfolio allocations from 19 per cent to 32 per cent over the next five years.