UBS Global Family Office Report 2023: Family offices planning the biggest shift in strategic asset allocation for several years

In light of potential inflection points across interest rates, inflation and economic growth, this year’s report shows that family offices are planning the biggest shift in strategic asset allocation for several years. Following the end of close-to-zero interest rates, balanced portfolios with active management arereturning to favor.

Family offices in Asia-Pacific had the highest allocation to equities (37%), in developed market fixed income, 41% are planning an increase over the next five years. Those surveyed also foresee greater allocation to risk assets, with 35% planning increases in emerging market equities, following a peak in the US dollar and the reopening of the Chinese economy.
There continues to be a strong trend among family offices for including alternatives to help diversify a portfolio, but they are refocusing their allocations. Almost half of family offices in Asia-Pacific (46%) prefer using hedge funds to diversify, while only 33% of the global family offices prefer to use hedge funds to diversify. For family offices in Asia-Pacific, hedge fund allocations have risen to 5% from 3%.

“This year’s report comes at a defining moment in time. It’s the end of an era for low or negative nominal interest rates and the ample liquidity that followed the global financial crisis. Against that backdrop, our research shows that family offices are making major changes to ensure they’re positioned for growth and success” said George Athanasopoulos, Head Global Family and Institutional Wealth, Co-Head Global Markets at UBS. “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.”

“Asia Pacific family offices had the highest allocation to equities compared to global peers last year. 40% of them also plan to significantly increase allocations to developed market equities over the next five years. Asia Pacific family offices continue a strategic asset allocation shift towards alternatives as their private equity investments were mostly allocated to funds last year. Looking ahead, we see their continued interest in diversifying with alternatives” said LH Koh, Co-Head of Global Family and Institutional Wealth APAC, UBS Global Wealth Management. He added that “at UBS, we continue to offer bespoke and
timely investment opportunities across different asset classes to our family and institutional wealth clients, with our strong one bank capabilities across the globe.”

Tommy Leung, Co-Head of Global Family and Institutional Wealth APAC, UBS Global Wealth Management said, “We continue to see strong interest amongst our family office clients in hedge funds and private equity funds. Almost half of the Asia-Pacific family offices use hedge funds to diversify, compared to one third of the global family offices. In line with the global trend, four out of ten Asia-Pacific family offices are planning to increase their asset allocation to developed market fixed income, over the next five years. Some of the longer-term investment themes that resonate with our Asia-Pacific family  offices are medical devices and health-technology. At UBS, we have seen increased interest from our clients in setting up family offices in Asia-Pacific and we look forward to collaborating with them for their wealth planning and family succession needs.”

Active management is back in favor with almost one third (34%) of Asia-Pacific family offices relying more on investment manager selection and active management to enhance diversification. Family offices have confidence in hedge funds’ ability to generate investment returns, as monetary policy reduces excess financial liquidity and macroeconomic uncertainty persists.

In Asia-Pacific, 80% of family offices expect hedge funds to meet or exceed their performance targets over the next 12 months. Asia-Pacific family offices with private equity investments prefer to invest using funds (53%) as typically, they deliver diversification and can allow family offices to enter markets where they do not have in-house expertise.

Within private equity investment, the top sectors that Asia-Pacific family offices are interested in technology, health care, information and communications, real estate and rental leasing. Overall, 27% of Asia Pacific family offices plan to raise private equity direct investments over the next five years.

Globally, family offices are cautiously planning to cut real estate allocations in 2023, but over five years, 13% of Asia-Pacific family offices foresee moving to higher allocations. This fits a picture of interest rates remaining high in 2023, with some softness in real estate prices, before easier money and lower valuations start to support the asset class once again.

Overall, family offices were cautious about current markets in the face of an uncertain growth outlook in developed economies, as well as tighter lending conditions and heightened geopolitical tension.
Geopolitics has become the top concern among family offices globally and in Asia-Pacific.

As regional investment preferences shift, Asia-Pacific family offices still have 51% of their assets in Asia-Pacific (including Greater China) and 64% plan to raise this allocation in the next 5 years.

US:

According to the report, the main purpose of family offices created in the US is to support the generational wealth transfer (76%). Sixty-three percent have a wealth succession plan in place for family members, but only 38% have created a succession plan for the overall family office. Investment allocation to real estate (21%) and hedge funds (10%) was the highest among global peers. In contrast to other regions, a recession is the greatest concern for US family offices and their cash allocations were the least conservative (7%).

Latin America:

Compared to global peers, family offices in Latin America had the highest allocation to fixed income (30%). Their allocation to real estate was the lowest (5%) and only a fifth (20%) use hedge funds as a portfolio diversifier. Sixty percent of family offices in Latin America do not invest in decentralized payments or technologies.

Europe ex. Switzerland:

Family offices in Europe allocated 11% of investments to real estate, with 30% planning to increase allocations in the next five years. Ninety-four percent manage strategic asset allocation in-house and 75% agree that illiquidity increases returns. Following digital transformation (79%), automation and robotics is the second most preferred investment theme (75%).

Switzerland:

According to the report, the main purpose of family offices created in Switzerland is to support the generational wealth transfer (73%). Forty-three percent have a wealth succession plan in place for family members, but only 35% have created a succession plan for the overall family office. Compared to global peers, they have the highest allocation to real estate (18%), cash (13%) and art & antiques (4%), with the lowest allocation to hedge funds (4%).

To learn more and download the report, visit: https://www.ubs.com/family-office-uhnw

About the UBS Global Family Office report 2023

This year’s UBS Global Family Office Report was compiled entirely in-house for the fourth year and provides the world’s largest and most comprehensive study of single family offices. UBS surveyed 230 UBS clients globally between January 19 and March 5, 2023. Participants were invited to partake in the survey via an online methodology, which was distributed to over 30 markets worldwide. In 2022, UBS surveyed 221 UBS clients across 30 markets.

UBS convenes the global ecosystem for investing, where people and ideas are connected and opportunities brought to life, and provides financial advice and solutions to wealthy, institutional and corporate clients worldwide, as well as to private clients in Switzerland. UBS offers investment solutions, products, and impactful thought leadership, is the leading global wealth manager, provides large-scale and diversified asset management, focused investment banking capabilities, and personal and corporate banking services in Switzerland. The firm focuses on businesses that have a strong competitive position in their target markets, are capital efficient and have an attractive long-term structural growth or profitability outlook.

UBS is present in all major financial centers worldwide. It has offices in more than 50 regions and locations, with about 30% of its employees working in the Americas, 29% in Switzerland, 20% in the rest of Europe, the Middle East and Africa and 21% in Asia-Pacific. UBS Group AG employs more than 72,000 people around the world. Its shares are listed on the SIX Swiss Exchange and the New York Stock Exchange (NYSE).

Fiona Chan, +852 2971 8837 / 9676 7515 / fiona-y.chan@ubs.com
Joyce Lam, +852 2971 8409 / 9336 2519 / joyce-zc.lam@ubs.com

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