Over half of global family offices rebalanced portfolios during Covid-19

More than three-quarters saw portfolios perform in line with or above benchmarks, UBS says

Abu Dhabi, United Arab Emirates, July 31, 2012:  
UAE dirhams. (Silvia Razgova / The National)

More than half of family offices globally rebalanced their portfolios in March, April and May to manage risk from the market sell-off, according to Swiss bank UBS.

Family offices largely stuck to their long term strategic asset allocation, but also made tactical allocations of up to 15 per cent of their portfolios to take advantage of market opportunities, which helped more than 77 per cent perform in line with, or better than, target benchmarks during the 12 months to May.

Two thirds of respondents to UBS’ Global Family Office Report said that their midterm view has not changed despite the economic disruption caused by Covid-19, the UBS report said.

“Family offices have behaved differently to others during one of the most volatile periods in the history of financial markets. In some senses, we saw them take an institutional approach, applying meticulous asset allocation strategies and rigorous investment processes. However uncomfortable it may have been at times, they stuck to their plans and remained disciplined,’’ said Josef Stadler, head of Global Family Office at UBS Global Wealth Management.

In a June report, Oliver Wyman and Morgan Stanley reported that global high net-worth wealth will decline by 4 per cent, or $3.1 trillion (Dh11.38tn), in 2020. Oliver Wyman said the pandemic will account for roughly one lost year of wealth accumulation.

During the first quarter of 2020, family offices’ average maximum drawdown was 13 per cent, according to the report, which surveyed 120 family offices around the world with an average wealth of $1.6 billion. More than two-thirds of the family offices were from Europe, the Middle East and Africa.

Family offices typically have a strong risk appetite and are exploiting the market decline for higher returns. Some 45 per cent are looking to increase exposure to real estate, 44 per cent are planning to raise allocations in developed market equities and 38 per cent are set to invest more in emerging market equities, the Swiss bank said.

Many family offices have been more cautious, adding to their cash and gold allocations. This retreat to cash looks set to be temporary, though, with 26 per cent indicating they will lower cash reserves in the next two-to-three years, but gold could be a long-term beneficiary of the crisis, with 45 per cent saying they will increase their exposure to the precious metal.

“Family offices embrace and manage risk like no other investor. It is missing an opportunity that gives these clients the biggest headache, not making a loss. This is why they are looking to deploy cash to take advantage of market dislocations. We expect to see big moves in the coming months,” Mr Stadler said.

Private equity is an important asset class for family offices. More than three quarters of family offices invest in private equity, with 69 per cent viewing it as a key driver of returns. However, expectations for private equity returns have fallen in the light of Covid-19. Only 51 per cent of family offices said they expected private equity to outperform public investments, down from 73 per cent previously.

A paper published by Bain & Company in February this year said US-based private equity buyout funds had failed to outperform public markets over a 10-year period.

About 73 per cent of family offices currently invest at least some assets sustainably, according to UBS. Nearly 39 per cent of family offices intend to allocate most of their portfolios sustainably within five years, the report added.