Back to business: Family offices adapt to the new normal

Europe’s wealthiest families register disappointing investment returns according to Campden Wealth research

Returns to mid-2012 fall to less than half previous

12 month period due to asset class allocation

LONDON 11 December 2012, According to research by Campden Wealth, Europe’s wealthiest families have registered the worst investment returns in 5 years, due to an over-allocation of assets such as cash and real estate which underperformed compared to investments in government bonds. In failing to meet their 2012 targets, family offices believe that investment strategies will focus on wealth preservation for the foreseeable future, moving away from capital generation.

Now in its fifth year, the 2012 annual report, entitled “Back to business – Family Offices Adapt to the New Normal”, surveyed 60 single- (SFOs) and multi-family offices (MFOs) across Europe, – each managing assets worth between €50 million and €1.5 billion.

According to the family offices surveyed, average annual returns were 3.6% among SFOs and 2% for MFOs for the year to mid-2012, marking a significant decline from returns of around 8% reported in the previous edition of the survey.

One UK-based SFO commented in the survey: “We’ve not performed as well as we would like or need to sustain our growing family’s needs. When we conducted an analysis of our investment style we found that we had broken some of the fundamental principles of investing that have serviced the family very well over the years – this hasn’t delivered the right results. We are shifting our style back to what works best.”

The onset of the crisis saw SFOs shifting away from investments in equities or bonds to more direct and physical investments, including cash and commodities. Other notable developments include an increased allocation to assets such as forests, farms, art collections, and antiques. Meanwhile, MFOs’ emerging market asset allocation saw an increase to 20% this year from 14% in 2011, reflecting findings that despite recently disappointing returns, some family offices report a tendency for increased allocations to higher-risk asset classes in the next three years.

Andrei Postelnicu, Director of Research at Campden Wealth, commented: “Before the financial crisis, family offices were at the cutting edge of smart allocation to new asset classes, such as hedge funds and commodities, often securing oversized returns.  The message from our survey this year is that family offices now find it much more challenging to outperform, not least given an understandable need to manage portfolio risk and maintain long-term investment strategies.” 

Other key findings:

  • For the first time in the survey series, real estate has become the single largest asset-class for SFOs, whose property allocations are double those of MFOs
  • Perspectives on investment risks and opportunities in the Eurozone differ dependent on how closely they are located to the sources of the turmoil
  • The increased volatility of the markets is causing family offices to use shorter time horizons on investments in order to preserve wealth
  • Wealth preservation will be more important than growth for the foreseeable future
  • Family offices are focusing on risk management strategies and are conducting deeper due diligence into external investment opportunities and banks/counterparties
  • There have been increased expectations of external advisors and demands for lower operating costs
  • Forecasts for average portfolio allocations in three years’ time, suggest that hedge funds will make up 0% of investable wealth forSFO’s and -8% for MFO’s
  • A growth in importance of successful governance. Investment committees have become increasingly frequent, as has the emphasis on educating the next generation on family businesses and wealth management
  • Philanthropic investments in foundations and endowments are becoming increasingly prominent in portfolios in a period where governments are cutting third sector allocations

Family Office Business model infographics and other charts included in the full 100 page report. Please contact us for details.

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About the report:
The annual Campden Wealth European Family office research report surveyed 60 single- and multi-family offices across Europe – each managing assets worth between €50 million and €1.5 billion. Participants varied from long-established operations serving six generations of the same family across multiple jurisdictions – and with an extensive range of investment, advisory and personal services – to newer establishments, currently developing their services to second-generation family members, or non-related families, including MFOs with different branches serving more than 100 families. In its fifth edition, the research was conducted with the support of UBS and it identify the key issues facing single family offices and multi-family offices, and provide comparative data against which individual offices could evaluate their activities and strategies. Equally importantly, it aims to examine the longer-term trends reflected over the years since the survey was first done, particularly the response of family offices across Europe to the financial crisis that started in 2008, as well as the ongoing eurozone crisis.

About Campden Wealth:
Campden Wealth is the leading independent provider of information, news and education for generational family business owners and family offices globally in person, in print, via research and online.Campden Wealth Research supplies market insight on key sector issues for its client community and their advisers and suppliers. Through in-depth studies and comprehensive methodologies, our research provides unique and proprietary data and analysis based on primary sources.

Campden also publishes the leading international business titles CampdenFB, CampdenFO and CampdenNXG. CampdenFB is aimed at members of family-owned companies in at least their second generation. CampdenFO is the international magazine for family offices and private wealth advisers. CampdenNXG meets the needs of next-generation wealth owners, focusing on succession-related issues. For more information visit: www.campden.com

Media Contacts:

Claudia Coleman / Bryony Scragg
Cognito Europe
+44 207 426 9400
Claudia.coleman@cognitomedia.com

Campden Wealth Contact:
Andrei Postelnicu
andrei@campden.com

Tel: +44 (20) 7214 0544