Investment
In Numbers: Global Asset Allocation Shifts For Family Offices As economic conditions and geopolitical landscapes change, family offices are planning their most significant shift in strategic asset allocation in several years to ensure long-term growth and success. The UBS Global Family Office Report 2023 reveals that family offices are refocusing their private market exposure, with potential inflection points in inflation, interest rates, and economic growth. In light of the ongoing Russia-Ukraine conflict and the U.S.-China cold trade war, geopolitics overtook inflation as the top concern among family offices globally, followed by a recession and inflation. The report surveyed 230 single-family offices worldwide, with a total net worth of $495.8 billion and individual families’ net worth averaging $2.2 billion. One notable shift in the increased interest in developed market fixed income. After reducing bond investments for three years, nearly 38% of family offices plan to increase their holdings over the next five years. Fixed income is now regarded as a popular source of diversification, with 37% moving to high-quality, shortduration bonds offering potential wealth protection, yield, and capital appreciation. The surveyed family offices anticipate a more significant allocation to risk assets, with 34%
planning to increase their investments in emerging market equities as USD reaches its peak and the Chinese economy reopens. Despite short-term market and geopolitical trends leading to increased liquid, short-term fixed-income exposure, 66% of family offices still believe that illiquidity boosts returns in the long term. Alternative investments are therefore gaining momentum for diversification, reducing direct private equity allocations (from 13% in 2021 to 6% in 2023) while increasing hedge fund allocations (from 4% to 6%), private debt (from 2% to 3%), and infrastructure (0% to 1%) to diversify portfolios. Real estate, which served as a key inflation hedge in 2021 and 2022, is expected to see reduced allocations by family offices in 2023. However, European, Latin American, and U.S. family offices foresee bigger allocations in real estate over the next five years, while fewer Asia-Pacific investors see themselves increasing allocations. Regarding value opportunities, 45% of family offices with private equity investments plan to overallocate their portfolios towards the
• Changes In Asset Allocation In The Next Five Years • Increase
Stay the same
Decrease
Don’t plan on investing
• Fixed income (developed markets)
38%
37%
16%
8%
• Fixed income (emerging markets)
20%
53%
9%
18%
• Equities (developed markets)
44%
43%
12%
2%
• Equities (emerging markets)
34%
42%
16%
8%
• Private equity (direct investments)
41%
39%
13%
7%
• Private equity (funds / funds of funds)
35%
42%
14%
10%
• Private debt
26%
46%
11%
18%
• Hedge funds
21%
48%
17%
13%
• Real estate
33%
48%
11%
7%
• Infrastructure
20%
54%
3%
23%
Source: UBS Global Family Office Report 2023.
F O R B E S M I D D L E E A S T.C O M
AUGUST 2023
BY RAWAN HASSAN
LEADERBOARD
18
secondary private equity market, as they outperformed public markets in 2022, and exits remain challenging to achieve through IPOs. The private equity market, in general, is seeing noticeable growth, with its total assets under management reaching $11.7 trillion as of June 30, 2022. It has grown at an annual rate of 20% since 2017, according to McKinsey’s 2023 Global Private Markets Review. Around 35% of family offices rely more on active management and investment manager selection to enhance diversification. They exhibit confidence in hedge funds’ ability to generate investment returns, with 73% believing they will meet or exceed performance targets in the next 12 months. Overall, 41% plan to raise private equity direct investments over the next five years, noting that 56% of family offices with private equity investments prefer to invest using funds. Although family offices currently allocate nearly half of their assets to North America, more than a quarter of them intend to increase their investments in Western Europe within the next five years. Nearly a third of these offices plan to expand and diversify their allocations in the broader Asia-Pacific region. Family offices remain on the fence for digital assets, staying cryptocurious rather than crypto-committed since 2022, despite 56% of the family offices investing in cryptocurrencies and distributed ledger technologies in 2023, 38% invested less than 1% of portfolio assets.
