Listed and private equity helped drive family office returns higher in 2017 as the ultra-high net worth segment increasingly adds to alternatives inaccessible to retail investors.
The average single family office portfolio, which manages $808m, is 28% listed equities and 22% private equity, according to research from UBS and Campden Wealth. It returned 15.5% in 2017, more than double the 7% returns seen in 2016 and well above the 0.3% delivered in 2015.
“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,” said UBS head of global family office Sara Ferrari.
Asia was the strongest contributor to performance, reflecting family offices’ relatively high exposure to emerging market equities and the high number of private equity deals in the region, said Ferrari.
Family offices favour alternatives
Alternatives account for 46% of the average family office portfolio, up 2.9 percentage points from the previous year despite a large reduction in hedge fund allocations.
Real estate allocations have rebounded to 17% after a slight decline in 2016. However, allocations to hedge funds continue to fall and now account for just 5.7% of the average portfolio. That is a 3.2 percentage point fall from 2016.
Half of family offices plan to increase their allocation to direct investments, namely private equity. A third want to up their holdings in emerging market equities, private equity funds and direct real estate investments.
Family offices lead on impact investing
Sustainable investing was practiced by 38% of family offices surveyed and 45% plan to increase their allocation over the next 12 months.
Impact investing experienced the greatest growth in family office participation, increasing from one quarter of respondents in 2016 to one third by 2017.
Families feel an obligation to make a positive impact on the world due to their large wealth, Ferrari said.
“Yet many are still to be persuaded to cross the line from interest to action,” she added. “The appetite is there, but more work needs to be done to demonstrate the investment case and create opportunities.”
Thirty-nine per cent of respondents expected the next generation to increase the family office’s allocation to sustainable investing. However, half of all respondents had no succession planning 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,” Ferrari said.
