Family offices are continuing to move into private investments with a third of overall portfolios allocated to private equity (17 percent) and real assets (16 percent), according to the Family Office Exchange’s (FOX) 2019 FOX Global Investment Survey. FOX is a membership organization for families, family office executives and advisers
The report says this allocation away from the traditional asset classes of equities and fixed income improved overall performance in a challenging year for stocks and bonds.
Another significant trend highlighted by the report across the average allocations of the past four years, is a continuing reduction in allocations to hedge funds (down from 12 percent in 2014, to less than 6 percent at the end of 2018).
Although the average overall portfolio return was essentially zero (–0.2 percent), family offices were surprisingly satisfied with the results. Almost half stated that they were either “Very Satisfied” (18 percent) or “Somewhat Satisfied” (30 percent) with their 2018 investment performance; 41 percent said “Neither Satisfied Nor Dissatisfied” and only 11 percent said they were “Very Dissatisfied.”
“Over a longer period of time, it is interesting to evaluate family offices’ performance relative to industry benchmarks, with family offices investing broadly across asset classes and along the liquidity spectrum,” said Kristi Kuechler, managing director of the investor market at Family Office Exchange. “Even after a tough 2018, family office returns handily exceeded the strong five-year returns generated from a U.S.-focused stock/bond portfolio.”
While traditional asset classes generated low or negative returns, private equity (both direct and funds) generated expected double-digit returns in 2018 (11.1 percent for private equity funds and 16.8 percent for private equity direct). Given the significant dispersion between investors in public markets vs. private markets in 2018, it is no surprise that those families that had meaningfully higher allocations to private equity and real estate saw the highest returns.
Family offices continue to re-evaluate traditional approaches to investing, highlighted by respondents’ accelerating interest in making direct investments in real estate and operating businesses outside of a fund. Of the 84 percent of families who make direct investments, 88 percent invest directly in real estate. Almost three quarters (71 percent) invest in operating businesses — outside of the core business, if there is one.
The annual survey of investor attitudes and behaviors provides a peer perspective from family offices on asset allocation and investment performance. The average investable asset base of those completing the survey is $586 million, with 17 percent of respondents overseeing more than $1 billion of investable assets.
Just under half continue to have ownership of the original business that generated the family’s wealth (44 percent). More than three-fourths of respondents are led by Generations 1 and 2 (77 percent) and 82 percent of the family offices are headquartered in the United States. The non-U.S. survey participants have family offices that are headquartered in Australia, Belgium, Canada, the Caribbean, Chile, Mexico, Saudi Arabia, Spain and the United Kingdom.
The survey was completed in January and February 2019 and asked about their allocations and performance as of December 2018.
