Campden Wealth Global Family Office Report 2014

GLOBAL FAMILY OFFICE REPORT: FAMILY OFFICES REPORT STRONG

PERFORMANCE

 

Reported overall investment portfolio returns fuelled by allocations to developed-market

equities, real estate direct investments

 

18 SEPTEMBER 2014 – UBS, in partnership with Campden Wealth Research, has

today launched a report on family offices in Europe, North America, Asia-Pacific, and

developing economies1. The research surveyed principals and executives in 205 family

offices with an average size of USD $890 million assets under management. In total, the

family offices represented manage over USD $180 billion in private wealth.

“Spanning six continents and over 40 countries, this year’s report provides very specific

insight on a wide range of family office topics, from performance and asset allocations

to structures and origins of wealth. Against initial expectations, the survey 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.

 

Performance driven by the quest for growth

Globally, family offices reported strong performance in 2013. 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).2 North American and European family offices were most likely to report

outperformance against benchmarks, followed by offices domiciled in Asia-Pacific and

developing economies.3 Across all regions, offices pursuing growth-based investment

strategies were most likely to report outperforming against investment benchmarks.

1 For the purposes of the study, developing economies denotes Africa, Latin America and the Middle East.

Asia-Pacific was treated as an independent, developed wealth management market; this is the first global

family office to do so.

2 This estimate (1) is based on weighted averages of 2013 actual performance for asset class indices in

USD and (2) assumes a constant allocation for the full year. For individual asset class allocations and

performance indices, please contact research@campdenwealth.com.

3 Almost half of North American family offices reported outperforming against benchmarks in 2013, the

same proportion of offices elsewhere meeting benchmarks.

 

The Great Rotation from Fixed Income into Equities

Critical to this performance were substantial holdings of developed-market equities.

While the typical family office portfolio was diversified across traditional asset classes,

developed-market equities and real estate direct investment comprised almost a third of

portfolios. 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 balanced and growth strategies in family offices globally. Offices still pursuing

wealth preservation strategies – most of which were domiciled in Europe – on average

allocated 15% of portfolios to developed-market fixed income. This allocation is over

twice as much as holdings reported by growth-oriented offices.

 

Co-investing takes hold

Another key finding of the report is the prominence of co-investing among family

offices globally. Overall, four-fifths of family offices reported participating in office-tooffice

or investment bank-syndicated private equity deals in the last year. Deal size was

remarkable: in 2013, participating family office syndicated deal size averaged USD $76

million, while those offices collaborating on private equity deals averaged investing

USD $119 million. Regionally, offices located in Asia-Pacific were most likely to coinvest,

followed shortly by developing economy family offices. European and North

American family offices were less likely to conduct direct investments, though

longitudinal data suggests an uptrend in both regions.

 

Environmental, social and corporate governance considerations curb underperformance

While environmental, social and corporate governance (ESG) considerations were not

prevalent among family offices, these considerations were most likely to influence

strategic and tactical asset allocations. Regionally, developing economy and Asia-

Pacific family offices placed the most emphasis on ESG when choosing investments.

Strikingly, those offices giving credence to ESG were least likely to underperform

against their benchmarks.

 

Additional key findings

Structures: Costs, Services and Beneficiaries

 

Family office costs are driven by investment strategy, management approach

· The average family office spends 86 basis points on operating costs, of which

investment activities account for almost half.

· The most demonstrable factor for operating costs was investment strategy:

family offices pursuing growth strategies spent, on average, 94 basis points,

compared to 75 basis points spent by offices pursuing wealth preservation

strategies. Growth-oriented offices also outsourced less responsibilities to

external service providers.

· Investment-related services costs account for 40 basis points of total family

office costs globally, significantly higher than other services (general

advisory services cost 19 basis points, administrative activities garner 15

basis points and family professional services merit 12 basis points, on

average). Over half of investment-related expenditures – 21 basis points, on

average – go toward external specialist firms.

· Globally, the majority of services were provided in-house, but European,

Asia-Pacific and North American offices seem to be trending toward

outsourcing specialised services, such as tax planning.

 

External service providers are key partners in nascent wealth markets

· Family offices in developing economies and Asia-Pacific attributed the most

value to their relationships with private and investment banks, reflecting the

emergent state of the family office environment in developing wealth markets,

namely the scarcity of suitable, quality service providers tailored to family office

requirements.

· Larger family offices reported higher overall levels of independence, having

assumed more in-house responsibility for the management and execution of

investments. 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.

Beneficiary involvement hinders family office performance

· Fifty-five per cent of family offices reported employing a beneficial family

member as a full-time member of staff, with almost a quarter of offices hosting

beneficiaries as part-time employees.

 

· Beneficiary involvement was highest in developing economies and Asia-Pacific,

with beneficiaries on average involved weekly in office operations; North

American beneficiaries were less involved, reporting quarterly oversight of

office activities.

· Family offices reporting high levels of beneficiary involvement reported

pursuing more aggressive, growth investment strategies, higher costs and lower

performance against benchmarks.

 

Purpose: Origins, Accountability and Philanthropy

Family offices are designed ensure intergenerational wealth transfer

· 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.

 

Family office structures do not always meet family expectations

· 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 realise.

 

Risk on

· Although family-related risk (reputation, data and confidentiality) is ranked the

most important risk management category by families, this risk category

received little attention when it came to the actual implementation of formal risk

management policies and external oversight of independent controls.

· Investment risk and banking risk, which trailed family-related risk in reported

importance, fared better, being almost twice as likely to receive formal,

structured attention, in aggregate.

 

Family office management of family philanthropy is growing and professionalising

· Most offices are involved in philanthropy, including strategic and organisational

features of their philanthropic engagements.

· 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.

To read the full report, please visit www.globalfamilyofficereport.com.

 

--- Ends ---

 

For further information please contact:

 

Andrew Porter

Director of Research, Campden Wealth

30 Cannon Street, London, EC4M 6XH, UK

+44 (0) 20 3763 2806

andrewporter@campdenwealth.com

 

Philip Higson

Vice Chairman, UBS Global Family Office

philip.higson@ubs.com

 

Notes to Editors:

About the research

The Global Family Office Report 2014 is the result of proprietary research undertaken

with family office principals, executives and beneficiaries in Europe, North America,

Asia-Pacific, the Middle East, Latin America and Africa in the spring of 2014.

Participants completed an extensive questionnaire and offered insight during in-depth

interviews, typically lasting an hour, conducted by members of the Campden Wealth

Research team. Participants were family office principals and executives managing the

assets of families with private wealth exceeding USD $100 million. Offices managing

assets of significant value on behalf of more than one family are included in the study

and comprise 20% of the sample. The study excluded multi-family offices that operate

as financial intermediaries for retail clients, which are categorically different from

traditional family offices.

 

The Global Family Office Report 2014 provides an analysis and evaluation of the

current and prospective outlook of family offices around the world. By focusing on the

relationship between office structures and investment strategy, as well as the ways in

which family involvement and family objectives for the office affect these structures and

strategies, this report provides a comprehensive analysis of the current, global family

office environment. In addition to presenting cross-sectional analysis, where appropriate,

the report makes use of longitudinal data compiled from Campden Wealth’s extensive

archives of Asian, European and North American family office studies.

 

About UBS

UBS draws on its 150-year heritage to serve private, institutional and corporate clients

worldwide, as well as retail clients in Switzerland. Its business strategy is centered on its

pre-eminent global wealth management businesses and its leading universal bank in

Switzerland, complemented by its Global Asset Management business and its

Investment Bank, with a focus on capital efficiency and businesses that offer a superior

structural growth and profitability outlook. Headquartered in Zurich and Basel,

Switzerland, UBS has offices in more than 50 countries, including all major financial

centers, and approximately 60,000 employees. UBS AG is the parent company of the

UBS Group (Group). Under Swiss company law, UBS AG is organized as an

Aktiengesellschaft, a corporation that has issued shares of common stock to investors.

The operational structure of the Group comprises the Corporate Center and five business

divisions: Wealth Management, Wealth Management Americas, Retail & Corporate,

Global Asset Management and the Investment Bank.

 

About Campden Wealth Research

Campden Wealth is the leading independent provider of education, information and

networking for generational family business owners and family offices globally in

person, in print, via research and online. Campden Research supplies market insight on

key sector issues for its client community and their advisers and suppliers. Through indepth

studies and comprehensive methodologies, Campden Research provides unique

and proprietary data and analysis based on primary sources. For more information,

please visit campdenresearch.com or email research@campdenwealth.com