Family Offices And Real Wealth

The world’s richest families are looking to real estate and private equity as they flesh out post-Covid investment strategies.

Since the 2008 crisis, wealth managers for ultrarich families have learned to navigate turbulence and preserve multigenerational fortunes. Thanks to strategic planning, March’s steep dive in global stock markets dented neither their appetite nor their wealth.

More than three quarters (76%) of 121 single-family offices with an average family wealth of $1.6 billion polled by UBS in May said their portfolios performed in line with or above their targets in the first five months of the year. The maximum drawdown was around 13% on average, according to the UBS “2020 Global Family Office Report.”

“They kept a fairly level head in how they look at the market,” says Bill Sullivan, president of the Family Office Exchange (FOX), an association of around 500 single-family offices across 20 countries with an average net worth per family of $500 million. According to the UBS report, nearly two-thirds (65%) of family offices proactively traded up to 15% of their portfolios.

Despite some rebalancing, the ultrawealthy didn’t make significant adjustments in their portfolios after the Covid-19 crisis hit. During the selloff, they increased their cash reserves and bought gold to protect their fortunes from market fluctuations.“We haven’t seen huge changes in their investment,” says Sullivan. “We have certainly seen some de-risking of their portfolios. We have seen a search for some liquidity, a little bit of a shift out of public equities, but that was already happening.”

Almost three-quarters of family offices polled by the FOX said they do not intend to defer or cancel their planned investments, while UBS reports that 67% of its respondents say their mid-term view has not changed. “They have preferred to stick with their current allocations and take time to digest how the market will evolve post-Covid-19 and impact their existing portfolios,” says Rebecca Gooch, director of research at Campden Wealth, a global research organization for wealthy families. Campden Wealth estimates that around 7,300 single-family offices are in operation worldwide, with total estimated fortunes of $9.4 trillion. The largest concentration (42%) is in North America, 32% in Europe, 18% in Asia-Pacific and 8% in the emerging markets of South America, Africa and the Middle East.

As financial markets recover from the selloff, these wealthy families are willing to put their liquidity to work. “They have the appetite. They want to capitalize and not miss an opportunity,” says Munish Dhall, deputy head of GFO Americas, UBS Global Wealth Management.

The shift toward real assets is likely to continue, as an uncertain post-Covid period approaches. “Outside of embracing risk- mitigation tactics, diversification has proved helpful, particularly as liquid investments, such as equities, have fallen,” Gooch says. “Real estate, as a longer-term illiquid investment, has proven attractive.”

Almost half (45%) of family offices told UBS analysts in May that they were planning to raise their allocation to real estate. Current lower valuations are also boosting appetite for venture capital, says Gooch.

Sustainable Investing

Sustainable and impact investing are also drawing attention during the global health crisis. Almost three quarters (73%) of wealthy families already invest in some sustainable assets, UBS says, and more than a third plan to make most of their portfolios sustainable in the next five years.

“At present, roughly one in three family offices engage in sustainable investing,” says Gooch. “However, the health crisis has led many to reevaluate their investment views and may lead to a widening of family offices’ risk assessment to include more environmental, social and governance [ESG] factors.” Private equity, invested either directly or through funds, is one way for families to put some muscle behind their social concerns. Measuring the return on these investments remains a challenge, however.

In the geography of wealth allocation, developed economies will continue to dominate, with nearly half of family offices looking to raise their allocations to equities in these markets, according to UBS. In particular, interest in Europe ticked up during the pandemic, as some sectors in the US market reached full valuation, says Reinhardt Olsen, head of GFO Americas at UBS Investment Bank.