Against the backdrop of the ending era of low or negative nominal interest rates and ample liquidity, global family offices are planning the biggest shift in their strategic asset allocation for the next several years.
According to UBS Global Family Office Report 2023, the biggest turnaround is in developed market fixed income, where almost four in ten (38%) of family offices surveyed are planning a significant or moderate increase in allocations over the next five years. This follows three years of cutting back on bonds.
The report surveyed 230 single family offices around the world with an average total net worth of US$2.2 billion. Of these, 45 are in Asia Pacific.
Of those surveyed, Asia Pacific family offices had the highest allocation to equities at 37%, compared to the US, Latin America, Switzerland and Europe at 27%, 30%, 29% and 28% respectively in 2023.
Over the next five years, 41% of Asia Pacific family offices are planning an increase in allocation to developed market fixed income. This is in line with the global trends, notes UBS APAC global wealth management co-head of global family and institutional wealth Tommy Leung.
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.
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Meanwhile, active management is back in favour — 34% of Asia Pacific family offices are relying more on investment manager selection and active management to enhance diversification.
Additionally, there continues to be a strong trend among family offices to include alternatives in an effort to diversify. However, they are refocusing their allocations — almost half (46%) of family offices in Asia Pacific prefer using hedge funds to diversify, while only 33% of the global family offices prefer to use hedge funds to diversify.
These 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.
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In their private equity investments, 53% of Asia Pacific family offices prefer to do so via funds. This as they typically deliver diversification and can allow family offices to enter markets where they do not have in-house expertise.
Within this asset class, Asia Pacific family offices are most interested in the technology; health care; information and communications; real estate and rental leasing sectors. Overall, 27% of Asia-Pacific family offices plan to raise private equity direct investments over the next five years.
Although family offices globally are cautiously planning to cut real estate allocations in 2023, over the next five years, 13% of Asia-Pacific family offices foresee moving to higher allocations.
This fits into the picture of persisting high interest rates 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, the region’s family offices still have 51% of their assets in Asia Pacific including Greater China, while 64% plan to raise this allocation in the next five years.
