How family offices worldwide are navigating the Covid-19 storm

Investments of more than three quarters of family offices performed in line with target benchmarks after more than half rebalanced portfolios in March, April and May

  
Businesspeople wearing masks in the office for safety during epidemic situation. Image used for illustrative purpose.

Businesspeople wearing masks in the office for safety during epidemic situation. Image used for illustrative purpose.

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Family office investments have performed on or above targets despite turbulent market conditions in the wake of Covid-19.

A report by wealth manager UBS shows that 55 percent of family offices had rebalanced portfolios during the first and second quarters. This strategy has evidently paid off, as more than three in four offices say that they have met or exceeded target benchmarks.

The Global Family Office Report, which surveyed 121 offices with an average worth of $1.6 billion, found that 55 per cent rebalanced portfolios to maintain long-term strategic asset allocation in the first and second quarters of 2020. Two thirds also reported trading up to 15 per cent of their portfolios tactically amid unprecedented market conditions.

Nearly half - 45 per cent - revealed strategies to raise their real estate allocation as the market dislocates: “Family offices generally think they will be far more aggressive than others in putting cash to work buying real estate,” said the report. 

It also showed that private equity continues to be important, but expectations for its performance has fallen to a degree. 69 percent name it as a key driver of returns, but 73 per cent expected it to deliver higher returns than public investments prior to the Covid-19 pandemic, compared to 51 per cent now.

Josef Stadler, Group Managing Director, Head Global Family Office, UBS Global Wealth Management, said: “As we reveal in this report, a commitment to strategic asset allocation has meant that family offices have performed in line with, or above, targets during one of the most volatile moments in the history of financial markets. Yet they also see the uncertain environment as a chance to deploy cash, raising rather than reducing their risk profiles.”

There continues to be a move towards sustainable investing, but the report states that its influence in the family office sphere should not be overstated.

Sustainable investing

Family offices are not currently bound by regulation which requires them to disclose environmental and social risks, but 39 per cent of respondents said they are now intending to allocate the majority of their portfolios sustainably within five years, with 73 per cent already investing at least some of their assets sustainably.

“Almost two thirds (62 percent) of families regard sustainable investing as important for their legacies, yet it’s unclear whether good intentions will turn into reality,” said the report.

While the next in line generations of family offices have greater affinity for sustainable investing, it is not the case that all will do so, with most offices still opting for a strategy in which they exclude investments not in line with their values, it continued.

From March to May 2020, the report said investment strategies were split into two camps: the first exploited market dislocations, such as in real estate, to buy up oversold assets, and the second took a more risk-averse stance, investing in cash and gold. A quarter – 25 percent – said they had converted assets to cash, and 21 percent reported investing in gold.

However, the report said the retreat to cash is likely to be temporary, with respondents saying they would look to reinvest their cash allocations within the next two to three years.

(Reporting by Imogen Lillywhite; editing by Seban Scaria)

(imogen.lillywhite@refinitiv.com)

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