September 19, 2024
SINGAPORE – Family offices are shifting their cash towards bonds, and public and private equity, with almost half expecting returns above 10 per cent over the next 12 months.
Public equity allocations were similar globally – between 26 per cent and 30 per cent. Allocations to private credit and real estate funds were also at comparable levels of around 2 per cent.
Bond allocations varied across the globe, with offices in the Asia-Pacific and Latin America giving it more emphasis, compared with the other regions.
Asia-Pacific family offices – entities that manage the wealth of the super rich – led the way in deploying more to public equity, or publicly traded companies, said Citi Private Bank’s 2024 Family Office survey on Sept 18.
About 68 per cent in the region reported increased allocations to public equity, the highest relative to other parts of the world. Only 32 per cent in North America did so.
About 42 per cent of Asia-Pacific family offices raised allocations to fixed income, while 39 per cent increased allocations to private equity or non-listed companies.
The asset class that saw the least change across every region was real estate.
Nearly 40 per cent of all family offices in Europe, the Middle East and Africa, Latin America and the Asia-Pacific cut their weighting in cash, compared with 30 per cent in North America.
The survey drew responses from 338 offices worldwide, with about 20 per cent of respondents from the Asia-Pacific. Half of the respondents had more than US$500 million (S$647 million) in assets under management (AUM).
Relations between the United States and China were a top concern for Asia-Pacific family offices. This was followed by expensive markets, inflation, interest rates and stability of the global financial system as well as trade disputes and currency risks.
The Middle East conflicts and the Russia-Ukraine war remained worrisome but to a lesser extent in the Asia-Pacific.
For the first time since 2021, inflation was no longer a top concern globally. Instead, the outlook for interest rates was the main worry for more than half of the respondents worldwide. This was followed by US-China relations, market overvaluation and inflation.
Globally, worries over the Middle East conflict were more prominent than those surrounding the Russia-Ukraine war.
When it came to portfolio performance, family offices in the Asia-Pacific saw the highest proportion of negative performance while those in Latin America saw the biggest increases.
The survey said family offices with over US$500 million in AUM tended to report positive portfolio performance more than smaller ones. Family offices in the region were the most bullish about direct private equity and private equity funds as well as developed market equities.
About 63 per cent of the region’s family offices thought their portfolios would increase by 10 per cent or more in the coming year. This compares with 52 per cent in Latin America, 33 per cent in North America, and 37 per cent in Europe, the Middle East and Africa.
Asia-Pacific family offices have the most geographically diversified portfolios, followed by those in Europe, the Middle East and Africa, and Latin America.
Flight from China occurred in all regions except for Europe, the Middle East and Africa. Asia-Pacific family offices made the most aggressive cuts, with investments down to 14 per cent from 26 per cent.
For family offices globally, China represented 5 per cent of portfolio allocations versus 8 per cent in the previous survey.
Globally, 40 per cent of business-owning family offices were considering mergers and acquisitions activity, mostly strategic acquisitions or joint ventures. The top three target regions are North America, Europe and the Asia-Pacific excluding China.
Family offices have a bias toward investing in their home region, followed by North America.
Europe, the Middle East and Africa family offices reported the highest commitment to artificial intelligence (AI) investments. Those in the Asia-Pacific expressed a strong preference for AI via public equity.
The Asia-Pacific led in digital asset adoption, with 37 per cent invested or interested in investing and 63 per cent not yet prioritising an allocation to this area.
Asia-Pacific family offices were the likeliest to rely on an outsourced chief investment officer (CIO) model, compared with the rest of the world.
When families reach the third generation or beyond since their wealth was created, they become much likelier to have a CIO in-house compared with first- and second-generation families, the study said.
When it comes to private equity fund allocation, buyout funds were most favoured by entities in the Asia-Pacific.
Direct investment was most brisk among Asia-Pacific family offices, with 69 per cent reporting increased or significantly increased activity. More than half have a strong preference for pre-initial public offerings.
Investment management is the top priority for family offices globally, followed by accounting, reporting, tax and administrative services.
Philanthropy was a major focus for 35 per cent of North America family offices, compared with 14 per cent in the Asia-Pacific. The Citi survey attributed this to the strong tradition of charitable giving in the US as well as the tax incentives available.
Globally, 40 per cent of families were expecting a significant leadership succession in the next five years. Asia-Pacific offices appear well-prepared for the change.
In terms of key risks, cyber security and geopolitics were felt to be the least well-managed, followed by family dynamics. Environmental causes remained one of the least-funded areas globally.
About half of the family offices in the Asia-Pacific perceived climate issues to be too difficult to solve. Citi reckoned it will take a generational shift for this mindset to change.