Strategic asset allocations help protect family wealth: Survey

Family offices in Asia and elsewhere have maintained their asset allocations to ride out the worst effects of the global market sell-off.

This stick-to-the-plan approach has resulted in around 75 per cent of family office portfolios meeting or even exceeding target benchmarks over the five month to May 31, noted a survey by Swiss bank UBS yesterday.

The findings were based on responses from principals and executives in 121 single-family offices worldwide, with average total family wealth of US$1.6 billion (S$2.2 billion).

Family offices traded decisively when economic activity stopped and market volatility surged.

Early this year, they made tactical changes to their portfolios due primarily to macro-economic uncertainties, the prospect of recession, changes in interest rates and to take profits, said the report.

While investment strategies among Singapore families were no different from their regional peers, some from a property background did invest more in the real estate investment trust (Reit) sector, said Mr Anurag Mahesh, co-head of Asia-Pacific global family office group at UBS Global Wealth Management.

"From an investment standpoint, Singapore is a big equity market for Reits, so the access to those investments Singapore families have is pretty good."

UBS estimates that Singapore last year had between 100 and 120 family offices, including those of families from around the world.

They had an average of US$467 million in assets under management.

Mr Mahesh said that both the number of family offices and the assets under management would have increased since last year, but he did not give figures.

He noted the move towards professional management of family wealth and an "incredibly supportive" regulatory framework has driven the growth of family offices here.

He said: "Singapore has a very nurturing ecosystem for family offices.

"They don't just need access to financial institutions, but many times they would like to be close to each other so that they can exchange ideas, pretty much like the asset management or the hedge fund industry do in various financial centres around the world."

  • 100-120

  • Estimated number of family offices, including those of families from around the world, in Singapore according to UBS. They had an average of US$467 million (S$650 million) in assets under management.

The Singapore Exchange has 43 Reits with a total market capitalisation of $117 billion.

Mr Mahesh added that UBS has not fielded inquiries from Hong Kong about moving to Singapore, in part because family offices are well diversified across global financial jurisdictions.

"We have not seen any movement of fund management entities across cities at all," he said.

"We believe that as international financial centres, both Singapore and Hong Kong remain competitive in their own right and they remain strong with the support of healthy fundamentals."

The UBS report said that families view strategic asset allocation as the cornerstone of wealth preservation and accumulation.

Any alterations often involve not only the beneficial owners but also the family office's decision-makers and even the next-in-line generation.

The portfolios were broadly diversified, with 35 per cent allocated to alternative investments and the rest in traditional assets, such as equities, fixed income and cash.

Cash allocations were on the high side, at 13 per cent, signalling the caution of some family offices.

Fixed-income exposure was low, at 17 per cent, in a world where interest rates were already close to zero or negative in some countries.

The highest strategic asset allocation weighting ahead of the crisis was in equities, at 29 per cent.

While around 65 per cent of family offices say that their mid-term view has not changed, most are seeking to make tactical changes to their portfolios in response to the macro-economic and market shifts due to the coronavirus pandemic and the subsequent global recession, the report said.

Eyeing dislocations and market opportunities, 45 per cent of respondents said that they were planning to raise their allocations in real estate.

A similar percentage aim to raise allocations in developed market equities.

Mr Mahesh said that family offices in Asia will continue to focus on their long-term objectives of wealth preservation while keeping agile enough to take advantage of opportunities that may arise.

Over the years, such offices have shown a strong preference to allocate their investments to private markets, such as private equity and direct investments, as they offer greater control, he added.

"In line with many families' growth focus, information technology and healthcare are the top two preferred sectors for their investments."

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A version of this article appeared in the print edition of The Straits Times on July 17, 2020, with the headline Strategic asset allocations help protect family wealth: Survey. Subscribe