The world’s richest families are starting to move their assets out of America following a “perceived peak in the US dollar”, as concerns over geopolitical instability, inflation and economic uncertainty spark the “biggest shifts in asset allocation for several years”.
That’s according to the 2023 Global Family Office Report from investment bank UBS, which also noted billionaire families are largely turning their backs on “metaverse” investments — suggesting the ChatGPT-driven “generative AI” craze has well and truly killed off Mark Zuckerberg’s virtual reality dreams.
The UBS report released on Wednesday surveyed 230 single family offices around the world. Family offices are private wealth management firms that look after the finances of ultra-high-net-worth individuals.
The average net worth of families represented in the survey was $US2.2 billion ($3.4 billion), with the family offices on average managing $US900 million ($1.4 billion). The total net worth represented in the survey was just shy of half a trillion dollars at $US495.8 billion ($762.7 billion).
George Athanasopoulos, head of global family and institutional wealth at UBS, said this year’s report “comes at a defining moment in time, with the end of the era of low or negative nominal interest rates and the ample liquidity that followed the global financial crisis”.
“Against that backdrop, our research shows family offices anticipating making major shifts in asset allocation,” he said.
“Notably, they are looking to add to developed market fixed income holdings over the years to come and are already diversifying portfolios through high-quality short-duration fixed income. What’s more, family offices are planning to raise holdings in emerging market equities, following a perceived peak in the US dollar.”
Wealthy families are also pouring more money into hedge funds “in line with a greater emphasis on active management, and they are planning to further diversify their private market allocations”, he said.
Mr Athanasopoulos added that “reflecting the tense international environment, geopolitics is now the top concern for family offices”, overtaking 2022’s top concern of inflation which came in at number three this year, behind recession.
“While they still have almost half of their assets in North America, they are planning to increase allocations to Western Europe for the first time in several years,” he said. “Additionally, almost a third are planning to raise and broaden allocations to the wider Asia-Pacific region.”
However, what families are worried about depends on where they are based.
“In the US, recession is family offices’ greatest concern, while in the Asia-Pacific region and Europe geopolitics is the top concern for most family offices,” the report said.
“Broadly speaking, the family offices interviewed for the 2023 report were cautious about current markets in the face of the uncertain growth outlook in developed economies, as well as tighter lending conditions and heightened geopolitical tension.”
One Singapore-based chief investment officer told UBS, “This year we are neutral everything. Even with equity we are not underweight or overweight. We are not taking big bets on anything.”
Another US-based chief information officer said the focus was on protecting capital.
“Last year we probably allocated $US30 million to $US40 million of new capital but probably liquidated $US180 million,” he said. “Right now, we probably have about a third of our capital in cash. If I look through to the managers we invest with (who are also heavily in cash), we are probably 50 per cent in cash.”
The report also found wealthy families largely stay away from digital assets such as bitcoin, or only invest in a small way — 44 per cent said they don’t invest in decentralised payments or technologies at all.
And while higher interest rates have curbed enthusiasm for growth investments “as they are long-duration assets discounting future cash flows”, wealthy families “continue to be excited about investing, if less so than in prior years”.
“Digital transformation remains the theme that resonates best, with three quarters (75 per cent) of family offices stating it’s a likely area of investment in the next two to three years,” the report said.
“Medical devices [and] healthtech is the second most likely area of investment, followed by automation and robotics, and then green technology.”
Just 21 per cent said metaverse was a likely area of investment.
Real estate remains a popular store of wealth, with family offices planning to increase their allocations over the next five years.
But the report found it was “mainly European (including Swiss), Latin American and US family offices that foresee bigger allocations”.
“One reason may be that these are the regions where nominal interest rates are relatively high and have furthest to fall,” the report said.
“By contrast, fewer Asia-Pacific investors see themselves increasing allocations. Naturally for a sector where location is everything, family offices tend to prefer domestic real estate. Family offices with real estate investments state that their allocations include 30 per cent domestic residential and 32 per cent domestic commercial, according to global average data.”
The report also found many family offices were falling short in their stated goals — 63 per cent said supporting the generational transfer of wealth their main purpose, but just 42 per cent had a wealth succession plan for family members.
“How easily does your family talk about inheritance and hopes and dreams?” a London-based chief executive commented.
“These things are so personal that it’s very difficult. A few years ago we had discussions with the family where we tried to articulate values. The result was something that we struggled to embed into the family. It’s very difficult, and especially so for the finance professionals who are used to dealing with less emotional topics.”
frank.chung@news.com.au
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