Nearly half of family offices are not prepared for wealth transfer says UBS research

12/09/2017 News Team

The composite global portfolio of family offices returned seven percent in 2016, according to a report by Campden Wealth Research in partnership with UBS. The returns were 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.”

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.

The report also 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 according to the research. 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.

Ms Ferrari commented: “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.”

The report noted that over 40 percent of family offices are expecting to increase their allocations towards impact and environmental, social and corporate governance (ESG) investments. 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.

The Global Family Office Report 2017 surveyed principals and executives in 262 family offices with an average size of 921 million US dollars in assets under management.

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