UBS has just published its Global Family Office Report 2024, with insights from 320 single family offices across seven regions of the world. Representing families with an average net worth of $2.6 billion and covering over $600 billion of wealth, it highlights how family offices are major investment players.

A new report by UBS reveals that family offices remained tilted toward North America in their asset allocations in 2023, and hiked exposure to fixed income in 2023, with the highest weightings of developed market fixed income seen in five years.

The 2024 survey shows that family office portfolios moved back to a greater balance between bonds and equities. On average, family offices have also kept their largest regional allocations in North America (50 per cent), over a quarter (27 per cent) in Western Europe, and 17 per cent in either the Asia-Pacific region or Greater China. Looking ahead, North America and APAC (excluding Greater China) are expected to be the top destinations of added allocations, with over a third looking to increase allocations to each of these regions over the next five years (38 per cent and 35 per cent respectively).

Meanwhile, artificial intelligence (AI) topped the investment themes, and more than three quarters of family offices stated that generative AI is likely to be an area of investment in the next two to three years.

Confidence in active management also increased as a means of portfolio diversification, moving from a more "passive" approach to handling investments, Amid rapid technological change, shifting rate expectations and uneven growth, the increased dispersion of returns offers opportunities for active management. Almost four in 10 family offices globally stated that they are currently relying more on manager selection and/or active management to enhance portfolio diversification, up 4 per cent from 2023.

Alternative investments also continued to be a big part of portfolios, providing an additional source of diversification and returns, with hedge funds being used by a third of family offices for diversification.

UBS also said that sustainability is becoming an increasingly important topic affecting not just family offices’ investment portfolios, but also the long-term outlook of operating businesses. As sustainability requirements become more specific, partly driven by regulation in sectors such as real estate, family offices want more sophisticated information and advice.

The UBS study is an example of how family offices, collectively holding trillions of dollars in assets, wield important financial muscle. They have been active in areas such as alternative investments (venture capital, private equity, private debt and real estate) and can be more nimble in some ways than large pension funds and life insurers. Banks such as UBS, Bank of America, Citigroup, JP Morgan, Deutsche Bank and DBS have developed specific offerings for family offices, such as outsourced investment office services, technology and support.

Below is a breakdown of the results across regions.

US
US family offices have the lowest (7 per cent) allocations to fixed income, on average, with 59 per cent of those holding fixed income saying they do so to benefit from high yields. Their portfolios have the highest tilt allocated toward North America (82 per cent) and 8 per cent toward Western Europe on average. In the US, high-quality short duration fixed income is the most popular means of diversification (47 per cent). Eighty-three per cent of US family offices also stated that they are likely to invest in AI. In the next 12 months, the top concern among US family offices is a major geopolitical conflict (57 per cent). Over the next five years, US family offices are most concerned about higher taxes (73 per cent).

Latin America
Compared with their global peers, Latin American family offices have the highest allocations, on average, to fixed income (27 per cent in developed market bonds, 7 per cent in emerging market bonds). Those that hold fixed income investments mainly do so to preserve capital (63 per cent), help balance risk (58 per cent) and benefit from the high yields (54 per cent). The cash holdings are the lowest, on average, in Latin America (5 per cent). In the next 12 months, the top concern is inflation (60 per cent), while over the next five years, it is climate change (48 per cent) and technological disruptions affecting their operating business and/or investments (48 per cent).

Asia-Pacific
APAC family offices want to add more developed markets fixed income (48 per cent), and developed markets equities (45 per cent). There was also increased appetite for alternatives, as APAC family offices plan to increase their allocation in private equity, private debt and hedge funds in the next five years, indicating their need for greater diversification.

Philanthropy and charitable giving also appeared popular in APAC, with 45 per cent of family offices saying they currently take it into account. Healthcare is also the top theme for APAC (59 per cent) family offices. Other top sustainability themes of APAC family offices include clean tech/green-tech/climate tech and philanthropy.

Among southeastern Asian family offices, 88 per cent believe they will have positive real interest rates for longer. They rely more on manager selection and/or active management to diversify (50 per cent). Compared with their global peers, allocations to real estate are the lowest, on average. A major geopolitical conflict and higher inflation are top concerns in the next 12 months, while over the next five years they are higher taxes and climate change.

North Asian family offices have, on average, high cash holdings and the highest allocations to Greater China of all the regions. Compared with their global peers, the likelihood of investing in AI over the next two to three years is the highest (89 per cent). They prefer high-quality short duration fixed income to enhance portfolio diversification (45 per cent). Over 12 months and in the next five years, North Asian family offices are most concerned about a major geopolitical conflict (56 per cent and 70 per cent respectively).

Europe ex. Switzerland
Among European family offices, 38 per cent said US real interest rates (taking inflation into account) will fluctuate around zero, the study shows. Compared with their global peers, the share of family offices planning to make changes to their strategic asset allocation in 2024 is the highest in Europe and, on average, there is a strong home bias to allocating their portfolios to Western Europe. Compared with their global peers, the share of family offices being covered against financial risks is highest in Europe (67 per cent). For the moment and over the next five years, European family offices are most concerned about a major geopolitical conflict (61 per cent and 71 per cent respectively).

Switzerland
Also, 38 per cent of Swiss family offices believe that US real interest rates will fluctuate around zero. Compared with their global peers, they have the highest allocations, on average, to equities (29 per cent developed market, 2 per cent emerging market) and only 11 per cent are planning to change their strategic asset allocation in 2024.