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Home bias weighs on family office portfolios in Asia

Family offices in Asia are increasing cash allocations amid portfolio declines, Citigroup says.
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Family offices in Asia are increasing their cash allocations more than their global peers amid this year’s market volatility, according to a survey conducted by Citi Private Bank.

More than half of the respondents (54%) from the Asia Pacific region have increased their cash allocations so far in 2023. Among all the family offices surveyed, this was the highest percentage relative to other regions.

Citigroup’s annual survey asked 268 investment firms representing wealthy families about their portfolio allocation. Over a third (36%) of the Asia Pacific family offices surveyed reported portfolio declines year-to-date – the highest percentage of all the other family office regions.

This compares to just one quarter of the family offices from North America (23%) and Europe (25%) reporting portfolio losses. Collectively, the family offices surveyed represent $565bn in net worth globally, with 21% of the respondents coming from Asia Pacific.

Investing in Asia Pacific has been difficult for family offices with a home bias – skewing holdings to their own region – as the local equity markets have lagged the North American and European indices.

Asian equity markets have been weighed down by fears of an economic slowdown in China amid its deteriorating property sector. Aside from the strong performance of Japanese equities, the MSCI Asia Pacific equity market has been one of the weaker indices year-to-date.

Performance of Asia Pacific equities versus the S&P 500 and MSCI AC Europe year-to-date

The MSCI AC Asia Pacific ex Japan has returned 4.5% year-to-date compared to a 17.7% return from the S&P 500 and 9.7% return from the MSCI AC Europe index over the same period.

Citigroup said that every region had some degree of home bias and that it represents a threat to existing wealth.

However, according to the survey, preserving the value of assets was most important to Asia Pacific family offices, the highest relative to other regions.

Looking ahead, investment firms for wealthy families in Asia plan to continue to reposition their portfolios over the next 12 months. They were most bullish on investment grade bonds (43%), private credit (33%) and private equity direct investments (29%).

When it comes to public equities, Asian family offices had a strong preference towards three sectors: technology (76%), healthcare (61%) and financials (37%).

Jonathan Gan, south Asia head of the global family office group at Citi Private Bank said: “With respondents in this region holding a sizeable proportion of investible cash and with their bullish outlook on investment grade fixed income, private markets and emerging market equities, we would expect to see investment activity in the region pick up”.

Although globally, most family offices are hunting for direct investments in private markets, Asia Pacific family offices surveyed were least likely to engage in direct investments when compared to other regions.

Part of the Mark Allen Group.