Family offices worldwide will recalibrate their investment strategies in 2024 in response to a stabilising macroeconomic environment, according to UBS’ Global Family Office Report 2024.
“Our 2024 report shows that family offices followed through on the plans for material shifts in strategic asset allocation foreseen in 2023’s report,” said George Athanasopoulos, Head of Global Family and Institutional Wealth, Co-Head of Global Markets at UBS. “By increasing weightings in developed market fixed income, they reintroduced greater balance between bonds and equities.”
Return to balance
The survey highlights a significant rebalancing within family office portfolios, particularly their allocation to fixed-income securities. In 2023, the average allocation to developed market bonds rose to 16%, up from 12% in 2022. At the heart of this scenario is the stabilising macroeconomic environment. Inflation and policy rates have peaked in the US and Europe and should gradually move lower in a healthy global economy. Given the US’s seemingly lower interest rate sensitivity, almost three-quarters (73%) of family offices believe that US real interest rates will remain positive for longer. However, European and Swiss family offices have different expectations: following their experience of negative policy rates over the past 10 years, 38% of those in both locations believe that US real interest rates will fluctuate around zero.
Latin American family offices have the highest allocation to developed market bonds at 27%, while their US counterparts maintain a much lower average allocation of just 6%.
Shifts in real estate and equities
In contrast to the rising interest in fixed income, allocations to real estate have declined. In 2023, family offices reduced their real estate investments to 10% of their portfolios, down from 13% in 2022 due to uncertainties in commercial real estate valuations. However, they plan to partially reverse this trend in 2024, increasing the allocation to 12%.
Family offices continue to hold their highest weightings in developed market equities, which accounted for almost a quarter (24%) of portfolios in 2023 on average, slightly less than 2022’s 25%. In 2024, family offices plan to lift this allocation somewhat to 26%. This is in striking contrast with equities in emerging markets, which made up only 4% of allocations on average in 2023—half the 8% level reached in 2020 and 2021.
Private equity adjustments
Private equity allocations have held steady, with direct investments and funds/funds of funds each representing 11% of portfolios in 2023. Looking ahead, family offices plan to shift slightly, reducing direct investments to 9% while increasing their allocations to private equity funds to 13% to enhance diversification.
Looking forward over five years, family offices plan to increase allocations in a range of asset classes. Almost half (46%) of family offices anticipate raising their developed market equity allocations in the next five years. More than a third (39%) plan to add to direct private equity investments, and a similar proportion (34%) to funds/funds of funds. At the same time, over a third (35%) intend to add to developed markets fixed income. Suggesting they are becoming more optimistic, more than a quarter (28%) of family offices plan to cut cash allocations.
But the uncharacteristic shifts of 2023 – with its rising fixed income and falling real estate allocations – appear to be over. Returning to their habit of making only minor adjustments to strategic asset allocation, fewer family offices are planning changes in the future. On average, only a little over a quarter (27%) of family offices intend to change their strategic asset allocation in 2024 – down from over a third (37%) that said they planned changes for 2023 in last year’s report.
Regional allocation preferences
There are notable regional differences in asset allocation strategies. US family offices have a strong home bias, with 82% of their portfolios invested in North American assets. In contrast, Swiss family offices allocate 54% to Western Europe. Family offices, on average, have half (50%) of their portfolios invested in North American asset classes, building on a multiyear theme of increasing their investments in a region that has proved resilient to high policy rates and geopolitical risks while offering the prospect of relieving global labour shortages through AI’s anticipated productivity gains.
Looking forward over five years, confidence in North America and Asia-Pacific (excluding Greater China) is enduring. Over a third of family offices plan to increase allocations to North America (38%) and Asia-Pacific (excluding Greater China) (35%)
Emerging investment themes and risk management
Generative AI has emerged as the most popular investment theme, with 78% of family offices planning to invest in this area over the next two to three years. Healthtech and automation also feature prominently, with 70% and 67%, respectively, showing interest.
While economies may be stabilising, family offices express concern about a range of investment risks. Geopolitics is the top concern, but climate change emerges as a top risk in the medium term. Over the next 12 months, 58% are worried about the potential impact of major geopolitical conflicts on their financial objectives. Looking ahead, 49% are concerned about climate change and 48% about a possible debt crisis, given Western countries’ high public debt levels.
When asked to look further over five years, longer-term worries become sharper focus. While geopolitical conflict remains the top concern (62%), almost half (49%) are worried about climate change, and nearly as many (48%) are concerned about a debt crisis at a time when Western countries are burdened by high levels of public debt that might appear unsustainable.
Strategic adjustments and active management
Despite these concerns, most family offices must plan drastic changes to their strategic asset allocations in 2024. Only 27% anticipate significant adjustments, down from 37% who planned changes for 2023. There is a growing trend towards active management, with 39% of family offices increasingly relying on manager selection to enhance portfolio diversification.
