UBS Group Family Offices 2017: the quest for yield pays off Dienstag, 12. September 2017 - 08:30

Key findings

• Significant bounce back in performance driven by continued trend towards illiquid and higher risk investments in the hunt for yield
• Nearly half are not yet prepared for looming generational wealth transfer
• Significant growth in sustainable and impact investing expected
• Nearly 95 percent of family offices plan to maintain or increase their commitments to philanthropic causes

Zurich, 12 September 2017 – Campden Wealth Research, in partnership with UBS, has today launched its annual report on family offices globally. The Global Family Office Report 2017, the most comprehensive analysis of its kind, surveyed principals and executives in 262 family offices with an average size of 921 million US dollars in assets under management.

Investment performance bounces back to 7 percent, driven by equities

After returning a meagre 0.3 percent in 2015, the composite global portfolio of family offices returned 7 percent in 2016. The recovery was driven by equities and private equity, which in turn were counterbalanced by the more subdued performance of real estate and hedge funds.

Equities (27 percent) and private equity (20 percent) now represent almost half of the average family office’s investment portfolio. This share looks set to grow further as most family offices plan to maintain (60.6 percent) or increase (21.3 percent) their investments into developing market equities, whilst 40.2 percent and 49.3 percent intend to allocate more into private equity funds and co-investments respectively.

Sara Ferrari, Head of Global Family Office Group, UBS AG, said: “Family offices have been making the most of their ability to embrace risk and invest for the long term, increasingly accepting illiquidity, much like other sophisticated investors. The benefits of this bolder approach are clear. North American family offices invested more than any other region into growth orientated strategies, and this strategy paid off as they outperformed.”

Rebecca Gooch, Director of Research at Campden Wealth, said: “Once again this year, we see that family offices are looking to increase their allocations to direct investing and co-investing. However, many are struggling to source interesting deals and find the right partners, and face challenges related to due diligence, as their in-house resources are often tight. In turn, some of those who are co-investing successfully told us that they source their deals through personal networks or choose to co-invest alongside funds for their due diligence capabilities. Families who wish to co-invest more may consider following similar approaches.”

Cross-regional analysis shows important variations between portfolio management strategies pursued by family offices across the globe. While those based in North America and Asia-Pacific tend to be committed to growth, executives in Europe and Emerging Markets are likely to opt for more balanced approaches.¹

Figure 1: 2016 Estimated benchmark performance of global composite portfolio, by region

Figure 2: Investment strategies by region

Only a third of family offices have written succession plans

Last year’s report found that 69 percent of family offices expect to undergo a generational wealth transfer within the next 15 years. The 2017 report investigated this issue in detail and found that nearly half (45.7 percent) of family offices do not yet have a succession plan, although 29.6 percent of these reported that they are currently developing one. A third (32.7 percent) already have written succession plans, whilst 14.6 percent have verbally agreed, but not written plans.

Family offices are taking a number of actions to prepare the next generation. These include work experience in the family office (57.9 percent) or externally such as at an investment bank (44.3 percent), structured investment training (30.7 percent) or involvement in philanthropy or impact investing (37.9 percent). In addition, ‘family governance and succession planning’ now accounts for the largest proportion of all family professional services spend.

Sara Ferrari said: “Only 30 percent of generational transfers are successful, so this is an existential issue. What we are seeing is recognition of the challenges associated with wealth transfer, and a growing understanding of the actions that need to be taken. Family offices can play a crucial role in maintaining family unity in decision making and developing talent. The strategic role of the family office should not be underestimated.”

Sustainable and impact investing set for significant growth

Over 40 percent of family offices are expecting to increase their allocations towards impact and environmental, social and corporate governance (ESG) investments. This reinforces a finding in last year’s report that families with children born after 1980 will see an increase in requests to participate in impact investing. Of the family offices that are already active in this area, 62.5 percent engage via private investment and 56.3 percent through private equity. The most popular sectors to invest in are education, environmental conservation and energy / resource efficiency.

The average family office that manages a family’s philanthropic activities directly gave 5.7 million dollars over the past 12 months. Nearly 95 percent of family offices plan to maintain or increase their philanthropic commitments in the coming year. In terms of specific causes, environmental protection and poverty received notably more attention, climbing from 33.3 percent to 41.7 percent and 34.7 percent to 41.7 percent respectively between 2016 and 2017.

Sara Ferrari said: “We know that millennials are driving the adoption of sustainable and impact investing. As they strengthen their skill-sets and assume more control, we’ll see this theme continue to take hold. This is an opportunity for family offices to use their investment expertise to convert social objectives into financial returns and shape the purpose of a family.”

Figure 3: Impact investing – sectors (percent of family offices, multiple responses permitted)

¹ The PWC and UBS Billionaires Report 2016 describes North America and Asia-Pacific as regions characterised by younger entrepreneurs or the so-called “new wealth”, which is more likely to be oriented towards growth than preservation.

Notes to Editors
About family offices: A family office is, in its simplest form, the private office for a family of significant wealth. The number of staff working in the office can vary from one or two employees, to 100 or more staff, depending on the type and number of services it provides.

The purpose of an office can range from handling key family assets and core holdings (tax and accountancy, property and estate management) to include more sophisticated wealth management structures, while often providing family members with educational, professional and lifestyle services.

Generally, family offices manage key areas of family assets, including real estate holdings and direct or indirect investments, tax consolidation and estate management, serving as the central hub for a family’s legacy, governance and succession communication.

About the research: Calculated based on Campden Research estimate that there are 5,300 FOs in existence globally

About UBS
UBS provides financial advice and solutions to wealthy, institutional and corporate clients worldwide, as well as private clients in Switzerland. The operational structure of the Group is comprised of our Corporate Center and five business divisions: Wealth Management, Wealth Management Americas, Personal & Corporate Banking, Asset Management and the Investment Bank. UBS’s strategy builds on the strengths of all of its businesses and focuses its efforts on areas in which it excels, while seeking to capitalize on the compelling growth prospects in the businesses and regions in which it operates, in order to generate attractive and sustainable returns for its shareholders. All of its businesses are capital-efficient and benefit from a strong competitive position in their targeted markets. Headquartered in Zurich, Switzerland, UBS has offices in 54 countries, including all major financial centers, and employs approximately 60,000 people. UBS Group AG is the holding company of the UBS Group. Under Swiss company law, UBS Group AG is organized as an Aktiengesellschaft, a corporation that has issued shares of common stock to investors.

Building on a deep understanding of our clients’ mindset, motivations and core values, we create bespoke solutions which are bold, innovative and tailored precisely to their individual needs. The four dimensions of Great Wealth – business, investments, passion, and legacy – form the basis on which we open a dialogue and begin a partnership with our clients across generations for generations, so that Great Wealth endures.

For more information, please visit: www.ubs.com.

About Campden Wealth
Campden Wealth is the leading independent provider of information, education and networking for generational family business owners and family offices globally in person, in print, via research and online. Campden Research supplies market insight on key sector issues for its client community and their advisers and suppliers. Through in-depth studies and comprehensive methodologies, Campden Research provides unique and proprietary data and analysis based on primary sources.

Campden Wealth also publishes the leading international business titles CampdenFB, aimed at members of family-owned companies in at least their second generation. Campden Wealth further enhanced its international reach and community with the acquisition of the Institute for Private Investors (IPI), the leading membership network of private investors in the United States, founded in 1991 and with the establishment of Campden Family Connect PVT. Ltd a joint venture with the Patni Family in Mumbai, India in 2015.

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