The global economic landscape has undergone significant changes in recent years, bringing with it challenges and opportunities for ultra-high-net-worth (UHNW) family offices seeking to preserve and grow their wealth. They must navigate a complex chain of economic factors, geopolitical risks, and market volatility. In this context, asset allocation has become more critical than ever as family offices strive to build resilient and diversified portfolios that can withstand the tests of time. This leads us to ask – globally, how are family offices adapting their wealth strategies?
For this, we turned to the UBS Global Family Office Report 2024. Here, we were not surprised to find that one of these strategies involves creating a diverse asset allocation strategy. Let’s explore what this can look like, along with what to consider when thinking of your own asset allocation and wealth strategy.
The Shift Towards Portfolio Rebalancing and Risk Management
According to the UBS Report, family offices made significant adjustments to their strategic asset allocation in 2023. One notable shift was the increased allocation to developed market fixed income, which rose to 16% in 2023, up from 12% in 2022, marking the largest increase seen in five years. Conversely, family offices reduced their exposure to real estate from 13% in 2022 to 10% in 2023. These changes reflect a growing emphasis on portfolio rebalancing and risk management.
The move towards fixed income can be seen as a response to the heightened market volatility and uncertainty that have characterized recent years. Family offices are increasing their allocation to this asset class in order to stabilize their portfolios and reduce potential downside risks. At the same time, the reduction in real estate exposure may be a reaction to the sector’s volatility and the potential for asset price corrections in certain markets.
Balancing Traditional and Alternative Assets
The UBS Global Family Office survey, which covered North America, Europe, Asia-Pacific, Latin America, the Middle East, and Switzerland, offers useful information about the typical asset allocation of family offices globally. The data reveals a diverse mix of traditional assets, such as equities (28%) and fixed income (19%), and alternative assets, including private equity (22%), real estate (10%), and hedge funds (5%).
This balanced approach to asset allocation suggests that family offices across these regions are seeking to diversify their portfolios by combining traditional and alternative assets. In doing so, they can potentially benefit from the stability and liquidity of public markets while also tapping into the higher return potential of private investments. However, it is essential to recognize that alternative assets also come with their own set of risks, such as illiquidity and higher fees.
The report also highlights some regional variations in asset allocation. For example, North American family offices tend to allocate a higher proportion of their portfolios to private equity (35%), compared to the global average, while Latin American family offices have a higher allocation to fixed income (34%). These differences suggest that the specific needs and objectives of UHNW families may vary depending on the economic factors and market conditions in their respective regions.
Building an Adaptable Asset Portfolio
Looking ahead, family offices must be prepared to adapt their asset allocation strategies to the evolving economic landscape. Several key factors are expected to shape the investment environment in the coming years, including interest rates, inflation, and geopolitical risks. Highlighted in the UBS Report, it’s stated that 73% of family offices believe that the U.S. will experience positive real interest rates for an extended period.
Globally, as central banks grapple with the challenge of normalizing monetary policy, family offices will need to keep a close eye on interest rate movements and their potential impact on different asset classes. Rising inflation is another concern, as it can erode the purchasing power of wealth over time. Geopolitical risks, such as trade tensions and regional conflicts, can also have significant implications for global markets and investment flows. The UBS report reveals that 58% of family offices are concerned about the potential impact of a major geopolitical conflict on their financial objectives over the next 12 months.
To more effectively navigate the above, family offices are adopting a range of strategies. Some are increasing their allocation to real assets, such as infrastructure and commodities, as a hedge against inflation. Others are focusing on sectors and regions that are expected to benefit from long-term structural trends, such as the transition to a low-carbon economy or the rise of emerging markets. In fact, over a third of family offices plan to increase their allocations to North America (38%) and Asia-Pacific (35%) over the next five years.
Ultimately, the key to success in this environment is to maintain a flexible, diverse, and adaptive approach to asset allocation. Family offices that can quickly respond to changing market conditions and rebalance their portfolios accordingly will be advantageously set to preserve and grow their wealth in the years ahead.
The UBS Global Family Office Report 2024 provides a wealth of insights into how UHNW family offices globally are proactively adapting their asset allocation strategies. The objective of these family offices is to construct enduring and diversified portfolios through the implementation of risk management and portfolio rebalancing, the smart allocation of traditional and alternative assets, and staying attuned to key economic and geopolitical indicators.
Family offices that can stay informed about the latest trends and projections to make informed decisions for their unique needs and objectives will be best positioned to protect and successfully transfer their multi-generational wealth.
Beacon Family Office at
Assante Financial Management Ltd.
Suite 519, 10333 Southport Road S.W.,
Calgary, AB T2W 3X6
