The average family office investment portfolio returned an estimated 9% on the year, with slight deviation across regions, investment strategy and family office size, according to a new report published by UBS in partnership with Campden Wealth Research.
The research surveyed principals and executives in 205 family offices on family offices in Europe, North America, Asia-Pacific, and developing economies with an average size of USD 890 million assets under management.
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"Spanning six continents and over 40 countries, the report provides very specific insight on a wide range of critical family office topics. The report highlights a high degree of common ground across family offices globally and will provide a sound basis for benchmarking and sharing best practice. This study is the definitive work on family offices to date and one from which family office principals, executives and service providers can glean actionable insight," said Philip Higson, Vice Chairman, UBS Global Family Office Group.
"While performance lagged slightly among developing economy family offices, our research attributed this largely to holdings of developing-economy equities and fixed income, which last year were surpassed by the meteoric rise of developed-economy equities. Despite these differences, the research revealed significant similarities globally in family office investment management structures, manager selection and oversight as well as reporting requirements," said Dominic Samuelson, Chief Executive Officer of Campden Wealth.
The key findings
Investments
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By GlobalData- Performance: The average family office investment portfolio returned an estimated 9% on the year, with slight deviation across regions, investment strategy and family office size (denoted by assets under management).
- Asset allocations: The report found evidence of "the Great Rotation" – moving portfolio allocations out of fixed income and into equities – signature evidence of the overall shift toward growth strategies in family offices globally.
- Co-investing: Four-fifths of family offices co-invested in 2013; office-to-office deal size averaged USD 119 million, while syndicated deal size averaged USD 76 million.
Structures
- Costs: The average family office spent 86 basis points on operating costs, of which investment activities accounted for almost half.
- Relationships with service providers: Over half of investment-related expenditures – 21 basis points, on average – were allocated to external specialist firms. Family offices managing over USD 1 billion allocated 35 basis points toward outsourcing, compared to an average of 58 basis points for smaller offices. Family offices that outsourced investment management were the least likely to outperform against investment benchmarks.
- Beneficiaries: Family offices reporting high levels of beneficiary involvement reported pursuing more aggressive, growth investment strategies, higher costs and lower performance against benchmarks.
Purpose
- Origins: Intergenerational wealth management is by far the most important objective of family offices, followed by the consolidation of accounting and tax functions and, thirdly, family unity. These priorities hold regardless of the degree of divestment of family wealth, demonstrating a clear raison d’être for family offices globally, regardless of family complexity.
- Accountability: Whereas family members rated investment-related services most important, across family offices globally the relative value of these services was smaller than the actual costs offices spent on these services. Managing investments cost more than families expect, while family professional services are cheaper than family members realised.
- Philanthropy: One-third of family offices have endowments of at least USD 10 million, many focused on healthcare and education sectors. Giving in Asia-Pacific increased by 10% since last year, with 77% of family offices in the region reporting some form of philanthropic engagement, placing the region on par with developing economy giving and slightly behind North American rates. While Europe hosts offices with the largest philanthropic endowments, almost a third of offices in the region do not manage the family’s philanthropy, more than the rest of the regions combined.
