Family offices across the globe are moving investments out of fixed income and into equities, according to a new report by UBS and Campden Wealth Research.
Family office investments are being subject to a “great rotation” away from fixed income, according to the Global Family Office Report 2014. The report surveyed 205 family offices worldwide.
The family offices have an average size of $890 million in AUM and the 205 family offices manage a total of $180 billion in private wealth.
The switch in investments is “signature evidence of the overall shift toward growth strategies in family offices globally,” the report says.
“Even though equities are down from last year's double digit returns, they are better than fixed income,” says Charlie Buckley, Americas head of the Global Family Office at UBS. Family offices are investing in alternatives, such as real estate and energy, and in other family's projects. Four-fifths of the family offices ‘co-invested’ in other families' projects, the study says, with deals averaging $119 million.
The average family office return on investment was 9 percent, with a slightly lower return in family offices in developing countries.
“While performance lagged slightly among developing-economy family offices, our research attributed this largely to holdings of developing-economy equities and fixed income, which last year were surpassed by the meteoric rise of developed-economy equities,” says Dominic Samuelson, CEO of Campden Wealth.
The average family office spent 86 basis points on operating costs, of which investment activities accounted for almost half. Over half of those investment costs were spent on outside consultants, the report says.
The money may be well spent, according to the report, which concludes that the more beneficiaries are involved in investment decisions, the worse the portfolio does. A family needs to decide how much decision-making power the family members need to have and whether the beneficiaries have the right skill sets to manage the money, Campden and UBS says.
The main goal for creating a family office is to manage intergenerational wealth, according to the report. The accounting of accounting and tax functions is second and creating family unity third.
Family offices are active in philanthropy, according to the report. One-third of family offices have endowments of at least $10 million with the focus for many on on healthcare and education.
