Family Offices 2016: Performance weakens against global challenging markets

Global Family Office Report 2016: the world’s leading family office research study offers insight into performance, investments and structural issues

Key findings:
 Composite global family office portfolio returns flat
 Variation in regional risks and search for growth
 Impact investing on the rise, driven by Millennial engagement
 Looming succession challenges

Zurich/London, 8th September 2016 –
Campden Wealth Research, in partnership with UBS, has today launched its annual report on family offices globally. The Global Family Office Report 2016 surveyed principals and executives in over 242 family offices, with an average size of USD 759 million assets under management.

The key findings:
Investment performance was weak, with returns at their lowest for three years
After returning 8.5 percent in 2013 and 6.1 percent in 2014, the composite global portfolio of family offices returned a disappointing 0.3 percent in 2015. This flat performance contrasts sharply with endowment funds of the top three US universities (Yale, Princeton and Harvard), which were up over 10 percent during the same period, although US endowments on average returned a more modest 2.4 percent in 2015.

Stuart Rutherford, Director of Research at Campden Wealth commented on the findings:
“The endowment funds of top universities tend to be prepared to take greater risks than the average family office, and often have much lower allocations to cash and fixed income. There is also more stability in their investment approach and management because they don’t have to navigate changes to family control and investment objectives. This enables endowments to seek higher returns in challenging market conditions.”

Significant regional differences in risk taking
There has been an overall increase in the percentage of family offices that are pursuing a growth strategy from 29 percent to 36 per cent. However, strategic asset allocations reveal a high degree of regional variation.

The most optimism can be found in the US, with a big move to ‘growth’ allocations. Emerging market participants are much less stressed than in 2015 and have cut their ‘preservation’ allocationsdramatically. In contrast, Europe is the standout negative, with its risk-off stance demonstrated by increased ‘preservation’ allocations and a cut in ‘growth’ allocations.

Philip Higson, Vice Chairman, Global Family Office Group, UBS AG noted:
“In the search for yield, family offices are playing to their strengths by allocating longer term and accepting more illiquidity. This approach is successful when experienced in-house teams have sufficient bandwidth for conducting due diligence and managing existing private market investments. The poor headline performance in 2015 can be attributed to weakness in liquid market investments. Portfolios that remained fully invested will have achieved year to date returns in excess of 5%. The best returns in 2016 have come from the rebounding of sectors and assets that came under pressure from weak energy and credit markets last year.”

Private equity is in favour, at the expense of hedge funds
Private equity investments have become even more central to family offices over the past year and now represent close to a quarter of the average overall portfolio. Multi-year participants have recorded a 2.3 percentage point increase in holdings of private equity investments to 22.1 percent. Meanwhile, the average family office reduced its holdings in hedge funds from 9 percent to 8.1 percent last year amid concerns about performance and fees.

Philip Higson commented:
“Most family offices can trace their roots back to the growth and success of a single business, and as a consequence you will often find an emotional desire to back entrepreneurs and ideas they believe in. Strong performance from private equity over the last five years has only served to strengthen this natural affiliation.”

Impact investing has come of age, driven by Millennials
A significant 61 percent of family offices are now active or expect to be active in impact investing in the foreseeable future. Millennials are a key catalyst for this change, with two-thirds of participants agreeing that families with children born after 1980 will see an increase in requests to participate in impact investing.

In addition, philanthropy continues to be a priority for many family offices. One-third of participants are likely to increase their philanthropic allocations while another two-thirds said they would remain the same. Education was the biggest beneficiary of family office philanthropy this year, replacing Children & Youth at the top of the table.

Stuart Rutherford said: “We have found that some of the wider social considerations of impact investing are also influencing traditional investing. Family office executives are increasingly telling us that the next generation’s social values are causing them to reconsider their asset allocation.”

Succession is a looming challenge
The report found that 43 percent of family offices expect a generational transition within the next 10 years, and 69 percent in the next 15 years, making this a pressing issue for the community. Yet just 37 percent find that the younger generation wants to be more involved than they presently are in the family office.

Against this backdrop, participants were asked for their main governance priority over the next 12-24 months and ‘implementing a succession plan’ topped their list of responses.

Just two in five respondents have personally experienced a successful transition of a family office. These individuals pointed to a number of factors that were important: a willing and able next generation; an older generation prepared to give up control; and a flexible and trustworthy family office.

Philip Higson added,
“In our experience the risk of disruption from a generational transition should not be underestimated. It is the number one reason for beneficial owners to make changes to their family office structure and management team."

Notes to Editors
About family offices: A family office is, in its simplest form, the private office for a family of significant wealth. The number of staff working in the office can vary from one or two employees, to 100 or more staff, depending on the type and number of services it provides.

The purpose of an office can range from handling key family assets and core holdings (tax and accountancy, property and estate management) to include more sophisticated wealth management structures, while often providing family members with educational, professional and lifestyle services.

Generally, family offices manage key areas of family assets, including real estate holdings and direct or indirect investments, tax consolidation and estate management, serving as the central hub for a family’s legacy, governance and succession communication.

About the research: The data quoted in The Global Family Office Report 2016 comes from a quantitative, online survey of 242 family offices conducted by Campden Wealth between February and May 2016. The average AUM of participating family offices was USD 759 million, and the regional split was as follows: North America (32% of respondents), Europe (40%), Asia-Pacific (19%) and Emerging Markets (9%). The majority (75%) of respondents were single family offices.

Campden Wealth also invited a select group of multi family offices to participate. Unless otherwise stated, the data reflects the position as at the time of the survey completion by participating offices. The performance data in the report is calculated using the latest available calendar year’s data, in this case 2015. To more accurately measure annual change, the report looks at the results of ‘multi-year participants’ - those family offices that participated in the research in 2015 and 2016. In addition to the quantitative survey and to gain further insight, Campden Wealth conducted in-depth interviews with another 25 family office principals, executives and advisers.

Media contacts:
UBS: Del Jones
+44 (0)203 805 4860
Hannah Davis
+44 (0)20 3805 4856
Oliver Gadney
+44 (o)20 7568 9982
Andreas Kessler
+41 (o) 44 236 5106
Gregg Rosenberg
+1 212 713 8842
Campden Wealth: Stuart Rutherford
+44 (0) 20 3763 2806

About UBS
UBS provides financial advice and solutions to wealthy, institutional and corporate clients worldwide, as well as private clients in Switzerland. The operational structure of the Group is comprised of our Corporate Center and five business divisions: Wealth Management, Wealth Management Americas, Personal & Corporate Banking, Asset Management and the Investment Bank. UBS’s strategy builds on the strengths of all of its businesses and focuses its efforts on areas in which it excels, while seeking to capitalize on the compelling growth prospects in the businesses and regions in which it operates, in order to generate attractive and sustainable returns for its shareholders. All of its businesses are capital-efficient and benefit from a strong competitive position in their targeted markets. Headquartered in Zurich, Switzerland, UBS has offices in 54 countries, including all major financial centers, and employs approximately 60,000 people. UBS Group AG is the holding company of the UBS Group. Under Swiss company law, UBS Group AG is organized as an Aktiengesellschaft, a corporation that has issued shares of common stock to investors.

Wealth Management provides comprehensive advice and financial services to wealthy private clients around the world, with the exception of those served by Wealth Management Americas. UBS is a global firm with global capabilities, and its clients benefit from a full spectrum of resources, including wealth planning, investment management solutions and corporate finance advice, banking and lending solutions, as well as a wide range of specific offerings. Wealth Management’s guided architecture model gives clients access to a wide range of products from the world’s leading third-party institutions that complement its own products.

A joint venture between UBS’s Investment Bank and Wealth Management divisions, the Global Family Office Group focuses on servicing our most sophisticated clientele with institutional-like profiles and requirements. It offers holistic advisory services, direct access to UBS cross-divisional expertise across the globe, institutional business opportunities and an extensive peer network with dedicated teams in New York, London, Zurich, Geneva, Hong Kong and Singapore.

Building on a deep understanding of our clients’ mindset, motivations and core values, we create bespoke solutions which are bold, innovative and tailored precisely to their individual needs. The four dimensions of Great Wealth – business, investments, passion, and legacy – form the basis on which we open a dialogue and begin a partnership with our clients across generations for generations, so that Great Wealth endures.

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About Campden Wealth
Campden Wealth is the leading independent provider of information, education 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 in-depth studies and comprehensive methodologies, Campden Research provides unique and proprietary data and analysis based on primary sources. Campden Wealth also publishes the leading international business titles CampdenFB, aimed at members of family-owned companies in at least their second generation and CampdenFO, the international magazine for family offices and private wealth advisers.

Campden Wealth further enhanced its international reach and community with the acquisition of the Institute for Private Investors (IPI), the leading membership network of private investors in the United States, founded in 1991 and with the establishment of Campden Family Connect PVT. Ltd a joint venture with the Patni Family in Mumbai, India in 2015.

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