Family offices increased investment in developed fixed income in 2023 to the highest level in the last 5 years and reduced their exposure to the real estate sector.
More fixed income from developed markets and less real estate assetss. These are the main changes in asset allocation introduced in 2023 by family offices to navigate a complex economic and market situation, which They will serve as support this year. With rebalanced portfolios, managers of the fortunes of ultra-rich investors (high net worth individuals) do not plan to make major strategic modifications, according to the latest edition of the Global Family Office Report which is carried out annually UBS and which brings together the opinions of 320 family offices from seven regions of the worldrepresentatives of families with a average net worth of $2.6 billion.
The assignments to fixed rent of developed markets increased last year by the highest proportion in the last five years (They reached an average of 16%, compared to only 12% in 2022, and this level is expected to be maintained in 2024,) although it must be taken into account that preferences vary substantially from one region to another, depending on local macroeconomic conditions and the deep-rooted inclinations. For example, Latin American family offices have historically made big bets on fixed income and continue to do so: in 2023, they allocated 27% of portfolios to developed market bonds. In the US, however, they only allocated, on average, 6% to developed market bonds.
On the opposite side, the real estate sector lost weight as an investment among large fortunes, from 13% from 2022 to 10% from 2023. The reason lies in the uncertainty, it is not known when valuations will bottom out, and in the greater attractiveness of liquid assets that generate returns, such as fixed income.
For this year, the administrators of large assets plan to correct this trend, raising the average allocation to real estate to 12%.
Favorite investment
With everything, equities remain the favorite asset of this investor profile, although with nuances.
Listed shares of developed markets rerepresents almost a quarter (24%) of portfolios in 2023 on average, compared to 25% in 2022. And for 2024, family offices plan to slightly increase this allocation, up to 26%.
There is a striking contrast with the emerging market equities, which only accounted for 4% of allocations in 2023, half that in 2020 and 2021.
“On average, family offices have half of their portfolios invested in North American assets, building on a multi-year trend of increasing their investments in a region that has proven resilient to high interest rates and geopolitical risks, while offers the prospect of alleviating the global labor shortage, thanks to the productivity increases predicted by AI,” explains UBS.
Other assets
The interest of family offices in private capital remains stable: Both direct investments and funds and funds of funds had an average weighting of 11% in 2023, compared to 9% and 10%, respectively, in 2022. By 2024, however, they plan to reduce direct investments to 9% and increase allocations to investment funds to 13%, probably in search of greater diversification, the UBS report maintains.
According to this extensive survey, cash positions will reduce slightly in 2024, up to 9% from 10% last year, which is “not surprising” given expectations of interest rate cuts by the Fed and European central banks.
Almost half (46%) of family offices plan to increase their investments in developed equity markets in the next five years, with North America and Asia-Pacific (excluding China) the biggest beneficiaries of new capital transfers .
More than a third (39%) estimate they will increase their direct investments in private equity, and a similar proportion (34%) will choose funds or funds of funds. At the same time, 35% plan to invest in fixed income from developed markets. And more than a quarter (28%) estimate they will cut cash, suggesting family offices are becoming more optimistic.
Concerns and confidence
The risk of a major geopolitical conflict is clearly the main concern for family offices regarding their investments, both in the short and medium term, according to the annual UBS study. Inflation and interest rates are other notable concerns in the next 12 months, but in the long term they play a less prominent role. Family offices are most concerned about climate change and high debt levels over the next five years.
On the other hand, the survey reflects their greater confidence in active management and/or in the selection of managers to diversify portfolios. This comes at a time when stock performance divergence has increased.
