SINGAPORE – Family offices, which are investment firms that manage money for the ultra-rich, had their average returns hit by heightened geopolitical tensions and market turbulence in the past year and they expect it to worsen in 2020.
Family offices around the world surveyed by Swiss bank UBS and data provider Campden Wealth reported an average return of 5.4 per cent over a 12-month period from the first half of 2018 to first half of this year, down from the 15.5 per cent average returns reported the previous year.
More than half of the 360 respondents expected a downturn to start next year.
“Family offices are cautious about geopolitical tensions, and there is a widespread sense that we’re reaching the end of the current market cycle,” said Dr Rebecca Gooch, director of research at Campden Wealth.
“While the average family office hasn’t made wholesale changes to its portfolio, many have been deleveraging their investments in anticipation of disruption ahead,” she added.
UBS estimates that there are between 100 and 120 formalised family offices in Singapore, of which 20 took part in the survey. They have an average of US$467 million (S$645 million) in assets under management.
The family offices in Singapore generated an average returns of 5.2 per cent in the past year, largely in line with the global average at 5.4 per cent as well as the Asia-Pacific average at 6.2 per cent, said UBS.
Direct private equities investments and real estate delivered strong returns globally and across the Asia-Pacific.
Mr Anurag Mahesh, head of global family office Asia-Pacific at UBS Global Wealth Management, said: “We continue to witness a strong and rising trend among Asian family offices to allocate their investments to private markets and real estate over the years.
“Given the strong preference of Asian families for real estate and given their entrepreneurial roots, this doesn’t come as a surprise to us.”
“Family offices continue to also focus on risk management in these volatile times while also increasing allocation to sustainable and impact investing,” he added.
More than 90 per cent of the Asia-Pacific family offices believe that relations between the United States and China will have major economic implications next year.
Nearly 90 per cent of them believe that artificial intelligence will be the next biggest disruptive force in global business.
And more than half think blockchain technology will fundamentally change the way people invest in future.
The survey also found that Asia-Pacific family offices have stepped up efforts to transfer their wealth to the next generation. Close to half of the family offices in the region now have a succession plan in place.
The average age of an Asia Pacific successor is 41d, whereas an average successor in Singapore is 39.
Nearly half of the Asia Pacific respondents believe that there should be an age limit on succession.
“Legacy and succession planning is in the minds of many Asian families as we anticipate intergenerational wealth transfer happening in the next 15 years,” said UBS family advisory and philanthropy head for Asia-Pacific Susan Sy.
“Succession spans a series of complex matters involving family, business, and investments. Engaging current and next-generation family members in open communication is an important process to help define a written family governance framework for succession,” she added.