Family Offices Raise Fixed Income Exposure to Five-Year High: UBS — Evening Brief – 05.30.24
A new report by UBS revealed that family offices’ asset allocations were heavily weighted toward North America last year, with the highest weightings of developed market fixed income observed in five years.
The Global Family Office Report 2024 highlighted those portfolios moved back to a greater balance between bonds and equities, lifting their fixed income exposure to 19% in 2023, from 15% the previous year, as interest rates rose.
Family offices’ weightings to equities fell to 28% last year, with 24 percentage points in developed equities, from 31% in 2023, but the report found the firms plan to marginally increase this to 29% in 2024.
On average, family offices have also kept their largest regional allocations in North America, at 50%, Western Europe at 27%, and 17% in either the Asia-Pacific region or Greater China, the firm said.
Moving forward, North America and APAC (excluding Greater China) are likely to be the main destinations for additional allocations, with more than 33% planning to boost allocations to each region over the next five years (38% and 35%, respectively).
Furthermore, artificial intelligence (AI) topped the list of investment themes, with over 75% of family offices indicating that they intend to invest in generative AI within the next two to three years.
Confidence in active management has grown as a measure of portfolio diversification, as investors transition away from a more “passive” approach to investing.
The analysis showed that, in the face of rapid technological development, shifting rate expectations, and uneven growth, the greater dispersion of returns provides opportunity for active management. Almost four in 10 family offices globally said they rely more on manager selection and/or active management to improve portfolio diversification, a 4% increase from 2023.
Alternative investments remained a significant element of portfolios, providing additional diversification and returns, with hedge funds employed by one-third of family offices.
UBS also believes sustainability is becoming an increasingly important concern, influencing family offices’ investment portfolios and the long-term prospects of operating firms. As sustainability standards become more detailed, owing in part to regulation in industries such as real estate, family offices want more complex information and assistance.
The report relied on data from 320 single-family offices in seven regions of the world, representing families with an average net worth of $2.6 billion and covering over $600 billion in wealth.
The study demonstrates how family offices, which collectively own trillions of dollars in assets, have significant financial power in markets. They have been involved in alternative investments, including venture capital, private equity, private debt, and real estate, and are more flexible than large pension funds and life insurers.
Banks such as UBS, Citigroup, JP Morgan, Deutsche Bank, and DBS have created bespoke offerings for family offices, including outsourced investment office services, technology, and support.