New reality for family offices

A new survey pursued by the UBS Group and Campden Wealth shows that family offices have reduced their allocation to hedge funds by 10 percent within the 12 months before May. “The reduction in allocation to hedge funds comes down to two concerns: high fees and disappointing performance,” said Philip Higson, vice chairman of Zurich-based UBS’s global family office group, in an interview with Bloomberg.

After the performance of family offices fell from 6.1 percent to 0.3 percent in 2015, other investments in asset classes such as bonds have been reduced. Instead, family offices are increasingly investing in illiquid assets such as real estate and private equity. Liquid assets are amounting to eight percent of family office portfolios on average, shows the study.

But for private equity investments, family offices may lack the expertise and personnel. Especially smaller offices are therefore planning to invest in funds instead of using direct transactions. More than half of the interviewed family offices are also planning to pursue more co-investments and make transactions with other offices.

Besides a new asset allocation to improve returns, family offices are also becoming more cost aware. “There will be an assessment of whether they’re doing too many things and whether they can get better value by focusing on fewer counterparties,” Higson said. “This is about being more considered and more cautious.” Moreover, IT security is becoming an issue. While 15 percent of family offices already experienced security breaches, the damage usually amounted to less than 15 percent.

UBS Group and Campden Wealth interviewed 242 family offices with average assets under management of 759 million US-Dollar. Most interviewees managed the wealth of a single family.