Reports suggest that the ultra-rich families are planning to make major shifts in strategic asset allocation. This was revealed in the UBS Global Family Office Report 2023 report stating the biggest shift in strategic asset allocation in the Family Office space is on its way. It is believed that the shift is a result of the end of low or negative nominal interest rates and ample liquidity that followed the financial crisis and global recession in 2022.
Amid market volatility, Family Offices are seen to be shifting to traditional, high-quality, long-duration and fixed-income investments. The UBS report found that 38% of the Family Offices were increasing allocations to traditional fixed income in 2023, which is a notable rise from the previous years. This is currently the most favoured diversification strategy for Family Offices worldwide. There were also greater allocations to risk assets. Reportedly, 44% of Family Offices have increased investment in developed market equities and 34% in emerging market equities.
The trend to include alternative assets in their portfolio prevails, according to the UBS report. Despite reduced allocation to direct Private Equity, Private Equity remains the most popular alternative asset class. Family Offices were also seen to have lifted allocations to hedge funds and reduced exposure to real estate this year.
What are the reasons behind this shift?
It is believed that Family Offices are making these shifts in response to the changing market conditions related to inflation, interest rates and economic growth. Overall, Family Offices in 2023 are most concerned about geopolitics, followed by recession and inflation. It is anticipated that geopolitics will continue to be the top concern that shapes Family Office decision-making amid the ongoing conflict between Russia and Ukraine and strained relations between the US and China.
These trends and changes are also discussed in the Citi Private Bank Global Family Office Surveys Insights Report 2023. The report indicates that Family Offices were prioritising their financial needs at the expense of other priorities such as succession. The Citi report found that Family Offices are now shifting focus to wealth management over fostering family unity and continuity. The top priorities for the majority of the Family Office respondents were wealth management and investment management in 2023. This is also reflected in the more proactive investment strategies amongst Family Offices. The UBS report pointed out that 35% of the Family Offices are relying more on investment manager selection and active management within asset classes and hedge funds in 2023. This goes to show that Family Offices are predominately concerned about investment returns, and it is anticipated that they will concentrate on their investment functions in the next few years.
The shifting focus of Family Offices is also reflected in the increased professionalisation in the investment function of Family Offices globally. According to the Citi Private Bank report, the increased implementation of Investment Committees and the use of Investment Policy Statement (IPS) contributed greatly to the progress of professionalisation in the investment function of the Family Office space in 2023.
What does this mean for Family Offices?
It is vital for Family Office professionals to familiarise themselves with the new investment trends in the Family Office space. Family Office professionals are tasked with implementing more active strategies and should be equipped to fulfil the new investment needs of their Family Office. The more active approach and increased professionalisation of Family Offices may also hint an increase in demand for high-calibre investment professionals.
How can Agreus help you?
Agreus is an established full-service resources and recruitment consultancy dedicated to working exclusively with Family Offices. We provide tailored and dedicated services to our Family Office clients. We take time to understand the culture of the Family Office, the existing team members, and deduce what would be a perfect fit for that particular client.
We work exclusively with Family Offices and cover various roles within a Family Office, from accounting and finance, investment, support and operational to executive staff. We understand the dynamics of a Family Office and can offer the perfect candidates as well as consultative advice on compensating your employees. For a more tailored conversation about hiring for your Family Office, please do not hesitate to get in touch.