Some observations from the UBS Global Family Office Report 2024
The UBS Family Office Report 2024 provides an interesting insight into the challenges facing family offices around the world. The analysis draws its information from 320 single family offices, across seven regions, with an average AUM of $2.6 billion. It gives us a clue as to what is keeping senior family office professionals awake at night and how they are navigating an unpredictable economic and political landscape. Here are my observations from the report:-
1. Geopolitical Concerns Dominate
Unsurprising, one of the top concerns for family offices is geopolitics allied with the risk of economic instability. According to some commentators, we are living in the most dangerous times since World War II, with war in Europe and conflict in the Middle East. Added to this, we have increasing concerns about Taiwan and the competition for regional hegemony between China and the USA. 58% of family offices cite a “major geopolitical conflict” as the main risk over the next year.
Higher inflation and real estate correction worries also figure prominently in the short term. There are regional variations. For Latin American family offices, the focus is on higher inflation over the next 12 months.
Over a longer time frame (five years), the potential of a major conflict remains uppermost in the family office executive’s mind with the prospect of a debt crisis and the implications of climate change following closely behind. This shift to a longer time horizon suggests family offices are taking a much more subtle approach when it comes to assessing risk and positioning portfolios accordingly to withstand systemic risks.
2.. Shifts in Real Estate and Private Equity Strategies?
Whilst fixed income as an asset class has seen increased interest (allocations have grown by the most in five years), it is noted that there appear to be changes in approach to real estate and private equity.
Often a mainstay within family office portfolios, the attractiveness of real estate as an asset class has been its stability and income generating qualities. Holding the physical asset remains the most popular choice (52%) and co-investment retains some appeal, particularly in the USA. In contrast, just 4% saw real estate equities as a viable alternative. With concerns over valuations and the attractiveness of other asset classes such as fixed income in comparison, exposure to real estate has been reduced to 10%.
Although private equity still predominates within alternatives, some headwinds prevail according to this survey, namely the deterioration of exit activity. Some single family offices are voicing concern about the “lack of available exits and liquidity.”
Artificial intelligence is the top-ranking investment theme with healthtech second and the circular economy bringing up the rear. Interestingly, the vast majority of family offices do not appear to have benefitted from the recent record high gold price with strategic allocation at just 1%.
3. Professionalisation of Family Offices Continues
The report highlights the progress that has been made in the professionalisation of the family office but suggests that there is still some way to go. It is estimated that $1.2 trillion will be passed onto the next generation within 20 years, yet under half have a succession plan.
On average, only 44% of family offices have a documented investment process and well under half have cybersecurity controls (40%) and a governance framework (44%). These figures are somewhat skewed – larger family offices (AUM $1bn+) contrast sharply with 60% benefiting from a documented investment process and 68% having cybersecurity controls.
Two-thirds of the family offices surveyed employ less than 10 people. In the AUM $1bn + category, 37% employ 10 or fewer staff with 26% having a headcount of 21-50 people. At least 72% employ one family member.
The cost of operating a family office comes in at an average of 39.8 bps. This represents an increase of 4.5% compared to the previous year. For smaller family offices (AUM $100 – $250m), costs equate to 43.2 bps.
Conclusion:
The UBS Family Office Report 2024 provides a glimpse into family office behaviours and how they are facing current uncertainties. The continued drive toward professionalisation, the shift in attitude towards private equity and real estate as well as geopolitical worries, reveal a dynamic picture as family office executives grapple with a variety of challenges both short and long term. Resilience is the priority in this unpredictable environment.
This article was written by Paul Avon, a Director at True House Partners, a specialist family office recruiter. Headquartered in London, True House Partners undertakes recruitment for family offices worldwide.