Gunther Jost, UBS Global Wealth Management
The latest edition of the annual survey by UBS Global Wealth Management shows that equities in developed markets have been the most popular asset class among family offices since 2019.
However, high inflation, central bank liquidity and rising interest rates have compelled them to review their investment options.
The survey found that family offices are reducing fixed income allocations, and increasing investments in alternative diversifiers, such as private equity, private debt, and real estate.
Rise of private market
In 2021, alternatives represented nearly 40% of the asset allocation for family offices worldwide, while Apac family offices allocated around 35% of their assets into alternatives, which means that it has become a core asset class for most family offices.
The allocations are expected to rise further in the next five years, with 51% of surveyed family offices saying they expect to increase direct investments in private equities, while 44% will increase investments in funds or funds of funds in the asset class.
“The popularity of private equity can be attributed to family offices’ increasing search for uncorrelated return, the less attractiveness in traditional fixed income, and a continued interest in the private equity sector,” Gunther Jost, head investment specialists and hedge funds, Greater China, advisory and sales, at UBS Global Wealth Management, told a media event on Thursday.
The study also showed that while Apac family offices lag their global peers in investing in private equities, they are especially interested in hedge funds and private debt.
“As clients are looking to diversify from traditional market investment, private debt and private real estate provide attractive yields and uncorrelated returns, while having limited volatility,” Jost added.
In the age of the tech economy, the technology sector is naturally the most common sector for private equity investments (73%) among Apac family offices, followed by healthcare (35%) and real estate (31%).
“As China shifts its focus on hard technology, there will be more support on artificial intelligence and robotics,” said LH Koh, co-head global family and institutional wealth, Asia Pacific, UBS Global Wealth Management.
“Outside of China, the covid pandemic has changed working and consumption patterns around the world, and will continue to create stimulus in the technology sector.”
Meanwhile, more than half of the Apac family offices (53%) said that they made sustainable investments over the last year, which is similar to that of a year earlier.
The ESG integration approach is the most common way adopted by Apac family offices (31%), followed by exclusion-based investments (25%).
Half of the surveyed Apac family offices believe sustainable investing will outperform the overall market in five years, while 29% of them believe ESG investing will perform in line with the overall market.
In terms of asset allocation by region, the study discovered that there is a strong home bias, with most American family offices investing in almost America only, while in Apac, the most allocated region is in Greater China.
Half of the respondents said they will increase their investments in the Greater China region, but the rate of increase has declined compared with previous years.
UBS Global Wealth Management surveyed 221 single family offices, which are also its clients, across over 30 markets around the world.
The offices manage a total of $258.8bn, and have an average net worth of $2.2bn.