Family offices worldwide faced diminishing returns in 2018, according to the Global Family Office Report for 2019, prepared by Campden Wealth Research in partnership with UBS.
The average family office portfolio returned 5.4 percent between the first two quarters of 2018 and the first two quarters of 2019. The Asia-Pacific region had the best returns, at 6.2 percent, with North America at 5.9 percent and Europe at 4.3 percent. However, 81 percent of respondents said their investment performance either met or exceeded benchmarks.
Fifty-five percent of family offices believe a recession is coming by 2020, according to the report, with 45 percent re-aligning their investment strategies and 42 percent increasing their cash reserves.
“Our returns have met expectations, but expectations haven’t been great—so it’s all relative,” one family member told Campden Wealth in the report.
Private equity performance
Private equity was the most productive asset class for family offices, returning an average of 16 percent for direct investments and 11 percent for funds-based investing, the report said.
“Real estate and direct private equity actually exceeded the high expectations that were set in a buoyant market at the start of last year,” said Rebecca Gooch, Campden’s director of research, in a press release.
Family offices remain interested in private equity. It made up 19 percent of the average family office’s portfolio, with 11 percent going to direct investments and 7.7 percent to private equity funds.
In 2020, 46 percent of family offices expect to increase their direct investments and 42 percent expect to increase their fund investments, the highest of any asset class.
The Global Family Office report is created using a “mixed method.” Twenty-five interviews were conducted with senior family office executives for the report. Three hundred and sixty families responded to surveys to collect information for the report, a 16 percent increase from 2018. The surveys were collected between February and May 2019.
In previous years, the report’s performance data came from indices. But this year, self-reported returns were also provided by family offices. Respondents were asked to provide average performance figures over the 12-month period before they were surveyed, while previous reports were based on calendar years.
Of the offices surveyed, 58 percent were a single-family office, 22 percent were a family office embedded in business, 11 percent were a “private multi-family office,” meaning they were founded by one family before being opened to other participants and 9.2 percent were commercial multi-family offices run by third parties.
Thirty-six percent of family offices are located in North America, 32 percent are in Europe, 24 percent in Asia and 7.8 percent in emerging markets. The total average assets under management for family offices was $917 million, with SFOs averaging $802 million AUM and MFOs $1.5 billion.
The highest average AUM for family offices was in Europe, $861 million, the U.S. family offices averaging $852 million, Asia-Pacific averaging $600 million an emerging markets averaging $676 million.
Action Item: Learn more about the 2019 Global Family Office report here.