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Continued low interest rates have shaken family offices’ long-standing faith in fixed income. Looking forward five years, they plan to dial down strategic asset allocation (SAA) to low-yielding bonds and cash. About a third (35%) intend to raise equity allocations in developed markets, more than half (56%) will do so in developing markets and almost half (42%) in private equity direct investments. 53% are revisiting their SAA considering current monetary and fiscal policies.
2021 marks the gradual acceleration of a change in strategic asset allocation (SAA) as family offices adapt to an altered world of interest rates at close to zero or even negative in many developed markets. While SAA is broadly stable compared with the previous year, they’re contemplating a world where fixed income yields remain relatively low for some time and there are new sources of growth.
Looking back at 2020, portfolios finished the year broadly diversified across asset classes, including alternatives. Average allocations were stable, with approximately a third (32%) dedicated to equities, a fifth (18%) to fixed income, a similar amount (18%) to private equity and 13% to real estate. Cash was 10% and hedge funds 6%, with smaller allocations to gold, other precious metals, commodities, and art and antiques. Note that these are global averages. For instance, US family offices allocated more than those in other regions to direct private equity and hedge funds while Asian family offices were more in favour of developing market equities.
Interviews with chief investment officers (CIOs) of family offices suggest that there has been an uptick in trading activity. “We handle tactical asset allocation very actively – mostly making changes for a duration of three to six months, overweighting or underweighting some asset classes that we have in our strategic asset allocation,” explains a CIO of a family office based in Switzerland. “This is how we basically deal with shifting opportunities. We have been doing this extensively for a year and a half.”
Turning to cryptocurrencies, upwards momentum makes them hard to ignore. Thirteen percent of respondents have invested, and 15% are considering doing so, although not as part of their SAA. “For us, it started really as just a pure trade,” notes the Swiss CIO. “We saw the institutional adoption and that was why we took on a small allocation in bitcoin, maybe almost a year ago. We figured that institutional adoption is only going to increase. It began as a pure momentum trade.” In Asia, a quarter report having invested, although it’s most likely at the margin of portfolios.
Note: UBS Evidence Lab surveyed 191 UBS clients globally between 18 January and 15 February 2021. Participants were invited using an online methodology and were distributed across 30 markets worldwide. Global Family Office Report 2021.
