Global Family Offices: Navigating Tactical Asset Distribution in Dynamic Environment

In an ever-evolving financial landscape, global family offices are leading the way, steering through the complexities of tactical asset distribution strategically. As custodians of multigenerational wealth, these entities adapt to the dynamic market conditions, balancing growth needs with risk mitigation. Their approach to asset allocation is becoming increasingly sophisticated, integrating global economic trends, geopolitical shifts and emerging investment opportunities. This agility is paramount in safeguarding the prosperity of their beneficiaries in an age where economic certainties are few and the need for strategic foresight greater than ever. In recent years, significant changes have been seen in several areas in respect of global family offices, two of which are discussed below.

Asset distribution (as portfolio regains equilibrium)

In 2023, family offices made significant adjustments to their strategic asset allocation, aiming to recalibrate their investment portfolios. This realignment, potentially influenced by increased bond yields and deliberate strategy choices, resulted in the most substantial increase in investments in developed-market bonds in the past five years. Concurrently, investments in real estate declined, coinciding with a downturn in commercial property values in certain regions. Nevertheless, family offices are anticipating a more stable approach to asset allocation changes in the current year.

 

Figure 1: Changes in asset distribution (2019-2023)

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Identification of climate change and debt crisis as key medium-term risks

Family offices are primarily concerned about the risks from significant geopolitical conflict in the short and medium term. Inflation and interest rates for the coming year are significant worries, but their impact is expected to diminish over the long term. In the next few years, concerns surrounding climate change and high debt are likely to escalate. Family offices believe that as climate and environmental issues gain prominence, sustainability and impact would play a crucial role in both risk management and opportunity. This applies to their investments and operating businesses. As per the annual survey (covering over 320 single-family offices across more than 30 countries) conducted by UBS Group in March 2024, healthcare is the top sustainability and impact theme for close to 40% family offices, followed by net zero and energy transition (less than 30%), clean/green/climate technology and education. These themes offer competitive investment returns and positive impacts, with relatively easy ways to measure the impact achieved.

Continuity in asset allocation to North America

Family offices’ drift towards North America in the distribution of assets is expected to persist. UBS’s projections indicate that both North America and Asia-Pacific, with the exclusion of Greater China, are poised to become the foremost beneficiaries of augmented investment inflows in the next half-decade. Nonetheless, there is a notable preference for investing in one’s country – a trend particularly pronounced in the United States and, to a lesser degree, in Switzerland and Europe.

 

Figure 2: Asset distribution by geography (2022 vs 2023)

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Growing dependence on proactive oversight

Amid a wide variation in stock performance, family offices have relied increasingly on active management strategies and fund managers to diversify their investment portfolios, preferring high-quality, short-term fixed-income assets, particularly within the United States.

Emphasis on sustainability: family offices seek guidance and information

Family offices have increasingly recognised sustainability as a critical issue in identifying risks and opportunities. With the growing acceptance of climate change as a significant issue, they acknowledge that sustainability influences the risks and opportunities associated with their business operations and investment portfolios. With the increasing precision of sustainability criteria in industries like real estate, family offices are looking for more advanced knowledge and direction.

Focus on investment expertise

Instead of undertaking a comprehensive range of activities to assist families, numerous family offices primarily focus on managing investments internally. These offices typically handle both the decision-making and implementation aspects of investments. They predominantly focus on financial risks as opposed to non-financial ones. Given that most family offices operate through a limited number of employees, it can be difficult to extend their services beyond their fundamental responsibilities.

In conclusion, global family offices are navigating an increasingly complex financial landscape through a strategic and adaptive approach to asset allocation. The recalibration of their portfolios and focus on sustainability and proactive oversight have positioned these entities well to manage multigenerational wealth amid evolving economic conditions. Furthermore, their emphasis on high-quality investments, regional diversification and emerging risks, including climate change and debt crisis, underscores their commitment to safeguarding future generations’ wealth. As they continue to refine their strategies, these firms remain pivotal to balancing investment growth and risk, ensuring resilience in an era marked by uncertainty and opportunity.

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