Family offices have increased their investments to developed market fixed income by the largest amount seen in five years, according to a new study by UBS. This was among one of the major shifts seen in this survey of 320 global single family offices across seven regions — the largest family office study UBS has carried out to date. They represent families with an average net worth of $2.6 billion, with a total of $600 billion of wealth. In terms of region, the average global asset allocation remains geared toward North America, said UBS. That’s due to U.S. tech companies still leading the generative artificial intelligence revolution, it explained. Here’s how family offices are investing this year and how they plan to change their allocations in the next five years, according to UBS’ Global Family Office Report 2024. Developed market bonds versus stocks Family offices shifted their allocations to developed market bonds by the largest amount in five years — in a shift that may reflect elevated bond yields, according to UBS. That has also reintroduced “greater balance” between bonds and stocks, it added. Family offices aim to fund their increased fixed income allocations mainly from cash — more than half (53%) plan to do so over the next five years. Around a fifth plan to do so by cutting their weighting in private equity (21%) and real estate (20%), respectively, to fund their bond allocations. In 2022 and 2023, allocation to developed market fixed income was at 12% and 16%, respectively – from 11% in 2019. Family offices plan to maintain the same allocation for 2024 – at 16%. “Family offices are chiefly concentrating on bonds with tenors of up to five years, which have the attractions of high yield, stability and sensitivity to falling policy rates,” said UBS. Developed market stocks accounted for almost a quarter (24%) of their portfolios in 2023 on average, and family offices plan to increase this to 26% in 2024, according to the study. Overall, almost half of family offices anticipate raising their developed market stock allocation in the next five years. “There is a striking contrast with equities in emerging markets, which made up only 4% of allocations on average in 2023 – half the 8% level reached in 2020 and 2021,” said UBS. Real estate Apart from fixed income, real estate was the other big change in how family offices invested last year, according to UBS. Globally, the average allocations to this asset declined to 10% in 2023 — down from 13% in 2022. That’s as uncertainty over when valuations will bottom persists and yield-generating assets such as fixed income got more attractive, said UBS. But family offices plan to increase the real estate part of their portfolios — to 12% in 2024, according to the report. LH Koh, managing director and head of global family and institutional Wealth (APAC) at UBS, pointed out that interest rates are probably the major factor for the renewed interest. Real estate is highly sensitive to rates — which are expected to go down. Demand is also driven by prevailing economic conditions of the time, he pointed out. U.S. stocks and AI Family offices have on average 50% of their portfolios invested in U.S. asset classes, according to the study. “[They are] building on a multiyear theme of increasing their investments in a region that has proved resilient to high policy rates and geopolitical risks, while offering the prospect of relieving global labor shortages through AI’s anticipated productivity gains,” said UBS. In terms of investing by theme, AI was also the most popular, with 78% of family offices saying it’s likely to remain an area of investment for the next two to three years. That’s followed by health tech (70%) and automation and robotics (67%). Elsewhere, family offices are investing in Western Europe – in sectors such as luxury goods and automation, and in Asia Pacific (35%). Greater China accounted for only 8%. Here’s how they are planning to change their asset allocation by region in the next five years.
