UBS report show that private equity and private debt are key areas for family offices across the world
Family offices are gearing up for their biggest shift in strategic asset allocation for several years according to UBS.
The global asset manager has polled 230 single family offices worldwide with an average total net worth of US$2.2 billion.
It found that a potential inflection point across interest rates, inflation and economic growth is driving the pivot while the end of near-zero interest rates, balanced portfolios, and increased focus on active management are also key factors.
Developed market fixed income is seeing a resurgence with 38% of respondents intending to boost bond holdings over the next five years, reversing a decrease in these assets over the past three years.
Fixed income is the preferred diversification strategy with 37% of family offices moving to high-quality, short-duration bonds for potential wealth protection, yield, and capital appreciation.
Refocussing alternatives
Alternative assets remain in demand among family offices, but asset classes are changing.
Hedge fund allocations have risen to 7% from 4% and in contrast, direct private equity allocations decreased to 9% from 13%. Real estate allocations are also set to reduce amid greater allocations to private equity funds, private debt, and infrastructure.
George Athanasopoulos, head of Global Family and Institutional Wealth, and co-head of Global Markets at UBS, says that it’s a defining moment in time.
“While current market and geopolitical trends have prompted a shift to liquid, short-dated fixed income, 66% of family offices still believe that illiquidity boosts returns in the long-term and they're looking to further increase allocations to alternatives like hedge funds, private equity funds and private debt to further diversify their private markets allocations,” he said.
Active management
The return to favour of active management - 35% of family offices relying more on investment manager selection and active management to enhance diversification – is reflected in the 73% of respondents who say they are confident that hedge funds will meet or exceed their performance targets over the next 12 months.
Although four in ten poll participants plan to cut allocations to direct private equity (PE) in the coming years, they plan to allocate more to PE funds.
Almost half (45%) of family offices with PE investments plan to over-allocate their portfolios towards the secondary PE market, anticipating that some institutional investors will be forced to rebalance portfolios following declines in public markets, and as exits remain difficult to achieve through IPOs.
Geopolitics overtook inflation as the top concern among family offices globally, followed by a recession and inflation.
