With the era of low-interest rates and ample liquidity ending, many of the world’s wealthiest families have made (or are planning to make) significant shifts in their asset allocation. That’s the finding of a new study by UBS that covers 230 “family offices,” each handling investments for a single wealthy family. The families have a collective net worth of nearly $500 billion or an average of $2.2 billion each.
The survey of family offices, which manage roughly half of the world’s private wealth, found that they want to rebalance their portfolios and increase allocations to developed-market fixed-income and emerging markets. They are also boosting allocations to alternative assets, such as hedge funds and private equity, and shifting their geographic exposures.
The family offices surveyed had an aggregated net worth of nearly $500 billion, or about $2.2 billion each, with the median value at $618,600. The assets were spread across real estate, cash and equities, mutual fund shares, corporate bonds, and structured products. The most valuable asset was home equity, followed by vehicles and other assets. Families without a high school diploma held most of their assets in home equity and other assets; those with a college degree tended to have nonretirement financial assets and retirement assets as the most significant share of their asset portfolios.
Amid rising uncertainty about global economic growth, geopolitics has replaced inflation as the top concern for family offices worldwide. Reflecting that tense international environment, the report found that almost four in ten family offices plan to raise their allocations to Western Europe over the next five years.
Meanwhile, almost three in ten are increasing their allocations to hedge funds, which they now view as the best way to diversify their asset portfolios. The influx of new capital into hedge funds has lifted the confidence of nearly three-quarters of family offices that they will meet or exceed their performance targets over the next year.
Similarly, family offices are raising their allocations to emerging market equities. They have held mainly these allocations flat in recent years but are now poised to lift them amid China’s reopening and an apparent peak in the US dollar. They are also boosting allocations to Asian and APAC economies outside of China, according to the report.
Those changes reflect that most family offices believe there is a greater need for active management than in previous years. In addition, the vast majority of family offices now manage their strategic asset allocation in-house. The report also finds that 75% of family offices agree that illiquidity boosts returns. The full report is available on the UBS website. It also is available on the family offices portal of the UBS Virtual Advisor.