UBS: Family offices seek alternative diversifications as strategic shift accelerates
Zurich/London, June 8, 2022 – UBS, the global leader in wealth management, today announced the launch of the Global Family Office Report 2022, which surveys 221 single family offices around the world. The report is the largest and most comprehensive of its kind, with family offices surveyed averaging a total net worth of $2.2 billion.
Shift from Fixed Income to Alternative Diversifiers
The report shows that family offices globally find themselves in a new era of strategic asset allocation (“SAA”), as high inflation, central bank liquidity and rising interest rates interest force them to reconsider their investment options. They are reducing fixed income allocations and increasing investments in private equity, real estate and private debt, sacrificing liquidity for returns. Forty-two percent plan to increase direct private equity allocations, while 38% intend to increase investments in private equity funds and funds of funds. Real estate is favored by 37%, while 27% turn to private debt.
A third (32%) of the average family office portfolio was allocated to equities in 2021, 15% to fixed income, 12% to real estate and 2% to private debt. Private equity continued its steady growth, rising from an average allocation of 16% in 2019 (including funds and direct investments) to 21% in 2021.
Looking to the future, family offices are exploring incremental changes in SAA, venturing further into the private markets they have invested in in recent years. Over the next five years, 29% plan to significantly or moderately reduce their investments in developed market fixed income securities.
“Family offices are keeping pace with a period of substantial transformation. In response to the COVID-19 pandemic, digital disruption and now a war in Ukraine, they are considering their options with greater urgency, as strategic shift towards additional sources of return and alternative diversifiers are gaining traction,” said Joe Stadler, Executive Vice President of UBS Global Wealth Management. “In challenging market conditions, family offices see the big picture and demonstrate prudence and innovation in their strategic asset allocation.”
Private Equity, a preferred source of return
The broad opportunity and potential of private equity to produce higher returns is popular among family offices around the world. 80% of family offices say they invest in private equity, which stands out as the only asset class where the number of family offices making allocations has increased steadily year on year. This figure is up from 77% in 2021 and 75% in 2020.
Private equity is a key risk asset in all regions of the world. Ninety-six percent of family offices in the United States are investing, with family offices in Switzerland not far behind at 86%. 83% and 79% of family offices in the Middle East and Asia-Pacific respectively invest in private equity. Even in Western Europe and Latin America, where private equity investment lags behind, participation is high, at 73% and 76% respectively.
Look for active strategies as uncorrelated returns become harder to find
Unlike in recent years, the report shows that family offices are also looking for more active strategies. Half (50%) rely more on active strategies and manager selection or plan to do so. According to 41% of family offices, they also look for illiquid assets.
Almost three quarters (71%) of family offices say it is difficult to find uncorrelated returns in the current environment. Reflecting low bond yields, nearly two-thirds (63%) say they no longer believe high-quality fixed income securities contribute to diversification. Just under a quarter (23%) of family offices use hedge funds to diversify or plan to do so. As the search for alternative diversifiers intensifies, a third (33%) of family offices believe they are no longer able to build a comprehensive portfolio with long-only investments.
Investing in technology and digital transformation
Eighty-four percent of family offices worldwide say digital transformation is the investment topic that resonates with them the most. This covers e-commerce, data, artificial intelligence, cloud and blockchain. Turning their attention to digital assets and distributed ledger technology (“DLT”), a third (35%) of family offices have invested in DLT or are planning to do so in 2021. A quarter (26%) were investing in cryptocurrencies or were considering doing so.
However, many family offices invest in digital assets and distributed ledger technology to learn rather than to earn. Aware of the disruptive potential of the blockchain, they want to understand the technology and its business applications. More than two-thirds (69%) say they are investing because they believe decentralized payments and technologies will be widely used. Similarly, more than half (53%) of those who invest in cryptocurrencies, or plan to do so, want to learn more about the technology. This compares to just under half (49%) who do so for purely financial reasons.
Notes to Editors
About the UBS Global Family Office Report
This is the third version of the UBS Global Family Office report. UBS Evidence Lab surveyed 221 UBS clients globally between January 19 and February 20, 2022. Participants were invited using an online methodology and were spread across more than 30 markets globally. In 2021, UBS surveyed 191 UBS clients in 30 markets.
UBS provides advice and financial solutions to high net worth, institutional and corporate clients worldwide, as well as to private clients in Switzerland. UBS’s strategy is centered on our core global wealth management business and our first universal bank in Switzerland, reinforced by asset management and investment banking. The bank focuses on businesses that have a strong competitive position in their target markets, are capital efficient, and have attractive long-term structural growth or profitability prospects.
UBS is present in all the major financial centers of the world. It has offices in more than 50 regions and sites, with approximately 30% of its employees working in the Americas, 30% in Switzerland, 19% in the rest of Europe, the Middle East and Africa and 21% in Asia Pacific. UBS Group AG employs more than 72,000 people worldwide. Its shares are listed on the SIX Swiss Exchange and the New York Stock Exchange (NYSE).