Report highlights how those focused on family fortunes are manoeuvring for success including asset allocation shifts
Family offices are going through a transformational period to mitigate some challenging times.
We’re all making changes to cope with the apparent end of the low-interest-rate environment, stubborn inflation, and addressing climate change; and while the scale is larger, those managing significant family fortunes are dealing with this too.
In a study from Northern Trust and the Wharton Global Family Alliance, inflation was the top concern of family office management (24%) followed by potential recession (18%) and geopolitical risk (17%).
To mitigate market volatility, these wealth professionals are allocating more to direct private investments and using private equity firms less, however they are not hiring experts specifically for this role.
“Private investments are attractive for many family offices because of the potential for high returns, but it is imperative that they deploy the right resources to evaluate and manage these investments,” said Professor Raphael Amit, founder and chairman of the Wharton Global Family Alliance and the author of the Wharton 2022 Family Office report.
Asset allocations
Meanwhile, UBS says that family office wealth managers are re-focusing on core principles
They have increased allocations to hedge funds and fixed-income securities and also looking to expand from the dominance of their assets in the US to include Europe and Asia Pacific investments.
The global asset management firm previously reported that family offices are gearing up for their biggest shift in strategic asset allocation for several years.
ESG investments
The report also reveals actual or planned increased allocations to ESG investments, although these investments amount to less than 10% of portfolios.
This low rate of ESG investment, the report says, may be due to a lack of consensus among family members as to the themes they should invest in.
While previous studies have shown greater interest in ESG and sustainable investing among younger family members, respondents to the Wharton report show a lack of succession planning in place.
Only one third of respondents reported that they have a formal succession plan in place for either the family office or the family itself, and even when there is only 37% of stakeholders are aware of the plan.
“The risks inherent in avoiding these conversations and failing to prepare are immense. A well-planned succession process takes at least a year; the time to start is now,” said David W. Fox, president of Northern Trust Global Family and Private Investment Office Services.
