Family offices moving out of fixed income into alternative investments: UBS report

Private equity is emerging on the investment radar of family offices because it can generate high returns year after year. ST PHOTO: LIM YAOHUI

SINGAPORE - Family offices based in Singapore, like their global and Asia-Pacific peers, are reviewing their strategic asset allocation this year after having kept it largely unchanged between 2019 and 2021.

The findings were revealed by wealth manager UBS in its third annual survey for the Global Family Office Report, which was released on Thursday (June 9).

The 2022 survey covered 221 of the world's largest single family offices across 30 markets between Jan 19 and Feb 20.

The report showed that inflation, rising interest rates, global geopolitical concerns and elevated valuations for different asset classes have emerged as concerns for family offices everywhere, including those based in Singapore.

Mr Tommy Leung, UBS Global Wealth Management's co-head of global family and institutional wealth for the Asia-Pacific region, said many family offices are now cutting their allocation to long-duration fixed income assets and raising their investment in alternative assets classes as they give up liquidity for higher returns.

Alternatives such as private equity, property and private debt represent about 39 per cent of family offices' asset allocation globally. In Asia-Pacific, it is about 35 per cent, said Mr Leung.

Private equity is emerging on the investment radar of family offices because it can generate high returns year after year, he said.

UBS expects private equity allocations to rise further in the next five years.

Technology is the most common sector for private equity investments, UBS said. It added that within technology, family offices prefer automation and robotics, digital transformation and health tech.

The UBS report showed that beyond alternatives, the second-most popular asset class is equities. Global family offices plan to allocate 32 per cent to equities, while Asia-Pacific ones plan to set aside 33 per cent for equities.

In terms of regions, Mr Leung said, family offices still see growth opportunities in Asia-Pacific, including China.

Among Asia-Pacific family offices, 69 per cent plan to increase their investment in the region outside Greater China in the coming year. Half of them also plan to raise their exposure to Greater China investments.

UBS also noted the trend of family offices relying more on active investment strategies instead of passive ones as they hunt for returns and achieve diversification.

Asia-Pacific family offices also continue to invest in sustainability, the UBS report said, with 53 per cent of them having sustainable investments in their portfolios.

Fifty per cent of these family offices said sustainable investments will outperform the overall market, while 29 per cent said they will perform in line with the overall market.

Mr Leung said family offices in Singapore make long-term investment allocation decisions in the same manner.

"We are all professional asset managers, money managers by training, and we all study the same syllabus. And that's why when it comes to the overall asset allocation, they tend to be very, very similar," he said.

The family offices surveyed by UBS manage a combined US$258.8 billion (S$356.5 billion) of assets.

As they relook their investment strategies and options, Mr Leung said, any decision they make should not have a big ripple effect on global asset markets because these asset managers tend to allocate money to a certain region or asset classes over time.

He added: "It is important to keep in mind that these shifts tend to be gradual and take a long time to evolve."

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