APAC family office returns strongest among peers

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Family offices in Asia-Pacific recorded the highest average return globally in 2017 at 16.4%, followed by North America (15.9%), according to UBS and Campden Wealth’s global family office report.

The outperformance was linked to type of equity exposure. On average, APAC-based family offices invested 14% of assets in developing market equities, versus the global average of 6%.

Developing market equities produced an average return of 38%, which helped drive the performance of family offices in APAC, according to the report.

In comparison to North America-based family offices, although they were heavily invested in equities, there was a preference for developed market equities, which returned on average of 23% in 2017.

Asset allocation 

In terms of asset allocation, APAC family offices have a preference for equities (28%) and alternatives, particularly real estate (18%) and private equity direct investments (15%), according to the report.

"I think hedge funds are expensive. I think they’re illiquid. I think they’re lacking in transparency."

However, within the alternatives space, hedge funds on average comprise only 1.6%, which is lower than the global average of 5.7%.

With bonds and equities continuing to outperform hedge funds, which have had less-than-desirable returns over the past several years, investors have been discouraged from allocating a greater proportion of their wealth to hedge funds, the report said.

One unnamed chief investment officer for a North America family office expressed an opinion about the disadvantages of hedge funds:

“I think hedge funds are expensive. I think they’re illiquid. I think they’re lacking in transparency. It’s funny, in the long equity world, fees have come down quite significantly over a period. Hedge funds have come down a bit, but they’re still kicking and shouting about fees. And if you’re making 20%, I’m quite happy for you to have a lovely big fee. But I know most of the hedge funds haven’t been making 20% – and frankly I’m not that happy with the fees that are paid and everything else.”

Family offices’ asset allocation

Source: UBS and Campden Wealth

Impact investing

Globally, impact investing is slowly becoming popular among family offices, with 32% of the respondents reporting exposure to impact-themed products, which is 4.2% higher than in 2016.

However, the majority of respondents report remaining uninvolved, and for a number of reasons. For example, they prefer to do good socially via philanthropic means; impact investing is not yet fully understood; the theme will not produce returns that are as strong as classic investments.

“We have done two impact investments so far. Although they are ‘impact’, they are impact for profit,” an unnamed president for a private multi-family office in Asia-Pacific said.

“Frankly, we do not understand impact investing,” said a managing director for a single family office in Asia-Pacific.

The findings are very similar to UBS’ recent survey among HNWIs in Hong Kong, where only 34% have sustainable investments in their portfolios.

The most common route for impact investing among family offices globally is through private equity, followed by equities and real estate, according to the UBS and Campden Wealth report.

Most common asset classes for impact investing

Source: UBS and Campden Wealth

 

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