Family office portfolios struggled to generate returns in 2015, according to an annual survey of more than 200 such institutions around the world, with private equity and real estate investments outperforming most other asset classes – “again”.
These were among the findings in the third outing of an annual report on family office trends just published by Campden Wealth Research and UBS, which is due to be available for purchase on Wednesday.
According to the report, the average family office portfolio generated a return of just 0.3% in 2015, compared with returns of 8.5% in 2013 and 6.1% in 2014.
This flat performance contrasted “sharply” with the endowment funds of the top three US universities (Yale, Princeton and Harvard), which were up by more than 10% during the same period, although US endowments on average returned a more modest 2.4 percent in 2015, the report’s authors noted.
Europe produced the strongest regional performance for the family offices, with portfolios up by 0.6%, compared with 0.3% in North America, 0% in Asia-Pacific and -0.6% in the emerging markets/ex-Asia-Pacific region.
The 76-page Global Family Office Report 2016 was researched and prepared earlier this year by London-based Campden Wealth Research, in partnership with UBS. It surveyed principals and executives in more than 242 family offices, with an average size of US$759m assets under management.
Three-quarters of the participants in the survey were single family offices, the remainder were multi-family.
Campden Wealth director of research Stuart Rutherford noted that were it not for their investments in private equity and real estate, the family offices would “actually have been down in the year rather than flat”.
Other key findings:
* The family offices surveyed were found to have made a “significant” 2.3% increase in their private equity holdings and a 0.9% shift away from hedge funds, which the report’s authors noted was a pattern that was “likely to be reinforced going forward”, even though it runs contrary to concerns that there are increasingly large amounts of money chasing private equity deals, resulting in ever-higher multiples being paid.
* In the private equity space, there was a move “out of direct investing and into indirect investing”, the report’s authors found, “with holdings of private equity funds among multi-year participants increasing by 10 percentage points”. The average family office portfolio was found to have a 7% stake in private equity and 3% in co-investing, and 11% in direct venture capital/private equity.
* Succession-planning is a major concern of the family offices surveyed, with 69% of those interviewed reporting that they’re “going to go through a succession in the next 15 years”, a fact that Rutherford says will require of them “huge amounts of energy and focus”.
* When investing in real estate, family offices stay close to home: the researchers found local holdings collectively accounted for 51% of total property portfolios. This, the researchers noted, reflects the fact that the firms’ in-house investors “generally favour markets that they know”.
* Although in 2015 the view “among multi-year participants was that commercial real estate would outperform residential, whether this was local, regional or international”, this year, that view “has been turned on its head, and the current view is that residential will be the better performing category”.
To read more and/or order a copy of the report, click here.