This study suggests that the vast majority of single family offices adjusted their portfolios to ride out the market storms - and subsequent recoveries - of the spring as the pandemic and associated lockdowns hit. Among other findings, it shows that SFOs added to gold and cash positions.

A global study of 120 single family offices around the world by UBS found that more than three quarters (77 per cent) said their investments performed in line with, or above, their target benchmarks from the start of the year through to May.

The survey revealed that family offices’ maximum drawdown was 13 per cent, but these organisations protected their positions by rebalancing portfolios. Some 55 per cent of family offices rebalanced portfolios in March, April and May to keep their long-term allocations on track. 

Only single family offices are tracked in the study; they have an average total wealth of $1.6 billion, significantly larger than that of any other comparable study.

The report adds to a picture of how single family offices – often discreet institutions that don’t crave the media limelight – are changing asset allocations. (This news service works with UK-based Highworth Research to track what SFOs are doing with their money.)

While two thirds (67 per cent) of family offices say that their mid-term view hasn’t changed, most are seeking to make tactical changes to their portfolios in response to the macro-economic and market shifts, the Global Family Office Report 2020 said.  

Family offices have a strong risk appetite, and are taking advantage of the market dislocation to exploit opportunities for higher returns. Some 45 per cent seek to raise allocations in real estate and a similar number are aiming to increase their allocations in developed market equities (44 per cent), followed by emerging market equities (38 per cent).

Cash, gold
Many family offices have also added to their cash and gold allocations, the report said. 

“The retreat to cash looks set to be temporary, with 26 per cent indicating they will lower cash reserves in the next 2-3 years, but gold could be a long-term beneficiary, with 45 per cent saying they will increase their exposure to the precious metal,” the report said. 

“Family offices have behaved differently to others during one of the most volatile periods in the history of financial markets. In some senses, we saw them take an institutional approach, applying meticulous asset allocation strategies and rigorous investment processes. However, uncomfortable it may have been at times, they stuck to their plans and remained disciplined,” Josef Stadler, head of Global Family Office at UBS Global Wealth Management, said. 

“Yet family offices also embrace and manage risk like no other investor. It is missing an opportunity that gives these clients the biggest headache, not making a loss. This is why they are looking to deploy cash to take advantage of market dislocations. We expect to see big moves in the coming months,” Stadler added. 

More than three quarters (77 per cent) of family offices invest in private equity, with 69 per cent viewing it as a key driver of returns. However, expectations for private equity returns have fallen in light of the economic dislocation arising from the COVID-19 pandemic. Only half (51 per cent) of family offices said they expected private equity to outperform public investments, down from three quarters (73 per cent) beforehand.

These wealth management institutions note that direct investments offer greater control, with 35 per cent regarding this as an advantage, against just over a quarter (27 per cent) before the economic disruption. 

Against the clichés
UBS said that its report shows that wealth inheritors don’t “comply with stereotypes”. 

“Currently in their 20s and 30s, they’re expected to be in their 30s and 40s when they take control. Despite commonly held expectations that there will be a shift in emphasis as the transition occurs, over half (54 per cent) of family offices say the next generation are just as interested in traditional investments as their parents - and in Asia and the US that proportion climbs to 71 per cent. Meanwhile, under half (48 per cent) view the next-in-line as pushing for an increase in sustainable investing,” it said.

Slow steps
The report inevitably touches on the continuing trend of environmental, social and governance (ESG)-driven investment. Some 73 per cent of family offices invest at least some assets sustainably. 

Some 39 per cent of family offices are intending to allocate most of their portfolios sustainably in five years’ time, the report said. 

Currently, family offices primarily target the easier option of exclusion-based strategies, which make up 30 per cent of their overall investments. ESG integration is catching up, as families seek to more than double allocation over the next five years, from 9 per cent to 19 per cent. A small minority intend to continue to maximize returns through traditional investments, while pursuing philanthropy separately.