According to the annual survey of 262 family offices around the globe, investment performance shows a recovery that is driven by equities and private equity, which in turn were counterbalanced by the more subdued performance of real estate and hedge funds.
The Global Family Office Report 2017 was researched and prepared by London-based Campden Wealth Research, in partnership with UBS. It surveyed principals and executives in more than 262 family offices, with an average size of US$921m in assets under management.
‘Investment driven by equities’
According to the report, equities (27%) and private equity (20%) now represent almost half of the average family office’s investment portfolio. This share looks set to grow further as most family offices plan to maintain (60.6%) or increase (21.3%) their investments into developing market equities, whilst 40.2% and 49.3% intend to allocate more into private equity funds and co-investments respectively.
As reported for the fourth year in a row, private equity (including venture capital/private equity, co-investing and private equity funds) continues to maintain a strong position in the family office portfolio, accounting for a 20.3% share.
While allocations to hedge funds represented 6.2% of the average family office portfolio, a marginal drop of 1.0% was reported among multi-year participants. Some movement away from this asset class has now been observed for the second consecutive year.
Similarly, real estate saw a slim 0.7% drop among multi-year participants, following a somewhat fluctuating trend reported in previous years. However, it still continues to account for a significant 16.2% share of the average portfolio, which makes it the third-largest asset class.
North America ‘continues to grow’
As per the report, cross-regional analysis shows important variations between portfolio management strategies pursued by family offices across the globe. While those based in North America and Asia-Pacific tend to be committed to growth, executives in Europe and emerging markets are likely to opt for more balanced approaches.
Third of family offices wrote succession plans
Last year’s report found that 69% of family offices expect to undergo a generational wealth transfer within the next 15 years. The 2017 report investigated this issue in detail and found that nearly half (45.7 percent) of family offices do not yet have a succession plan, although 29.6% of these reported that they are currently developing one. A third (32.7%) already have written succession plans, whilst 14.6% have verbally agreed, but not written plans.
The report also stated that family offices are taking a number of actions to prepare the next generation. These include work experience in the family office (57.9%) or externally such as at an investment bank (44.3%), structured investment training (30.7%) or involvement in philanthropy or impact investing (37.9%). In addition, ‘family governance and succession planning’ now accounts for the largest proportion of all family professional services spend.
Over 40% of family offices are expecting to increase their allocations towards impact and environmental, social and corporate governance (ESG) investments. This reinforces a finding in last year’s report that families with children born after 1980 will see an increase in requests to participate in impact investing.
Of the family offices that are already active in this area, 62.5% engage via private investment and 56.3% through private equity. The most popular sectors to invest in are education, environmental conservation and energy/resource efficiency.
The average family office that manages a family’s philanthropic activities directly gave US$5.7m over the past 12 months. Nearly 95% of family offices plan to maintain or increase their philanthropic commitments in the coming year. In terms of specific causes, environmental protection and poverty received notably more attention, climbing from 33.3% to 41.7% and 34.7% to 41.7% respectively between 2016 and 2017.