The inaugural BlackRock Global Family Office Survey of 185 Family Offices globally, has revealed that despite recent market turbulence and a challenging economic outlook, only 23 per cent of Family Offices intend to make material changes to their asset allocation, largely due to their long-term investment horizon.
The inaugural BlackRock Global Family Office Survey of 185 Family Offices globally, has revealed that despite recent market turbulence and a challenging economic outlook, only 23 per cent of Family Offices intend to make material changes to their asset allocation, largely due to their long-term investment horizon.The survey shows that where changes were made, finding a replacement for fixed income allocations was the top priority for Family Office CIOs, while concerns around equity valuations and liquidity needs are front of mind.
Additionally, the threat of inflation is beginning to command greater attention from Family Offices across the globe. Despite the initial deflationary shock to markets from the Covid-19 crisis, Family Offices are wary of the impact of the extraordinary fiscal and monetary stimulus injected into the global economy and view inflation as a significant medium-term risk.
On average, Family Offices allocate approximately 35 per cent of their portfolios to alternative asset classes, and within this allocate 10-25 per cent of their portfolio to private equity. Over half (55 per cent) of Family Offices reported that they expect to grow their exposure to private equity.
The survey evidences a shift in investor sentiment on private debt; historically, allocations have been low, with 87 per cent allocating less than 10 per cent, but two-thirds of Family Offices indicated that they intend to increase their exposure in the future attracted by the potential returns from dislocated markets.
Similarly, while hedge funds may have been out of favour over the recent past, 38 per cent stated an intent to increase their exposure, citing the potential to generate meaningful, uncorrelated risk-adjusted returns in a more volatile market environment or to act as a replacement for fixed income.
Infrastructure currently represents a relatively modest component of Family Office portfolios with 56 per cent of those investing having an exposure of 5 per cent or less. Yet, there is a clear upward trend for infrastructure, with 62 per cent of Family Offices intending to increase their exposure.
Over three-quarters (80 per cent) of Family Offices surveyed currently have some form of sustainable investment exposure integrated within their portfolio strategy. Increasingly, there is an acknowledgement that sustainable exposure does not necessarily result in a trade-off between returns and core values. Over half (59 per cent) do not believe they have to compromise financial outcomes to achieve their sustainable goals.
The way in which Family Offices are participating in sustainable investing diverges. Of those investing in these strategies:
34 per cent rely on exclusion policies;
56 per cent use specific sustainable strategies; and
38 per cent have adopted sustainability as a key component of their investment risk assessment
The scale of commitments to sustainable investing varies regionally. In EMEA the average Family Office allocates 22 per cent of their overall portfolio to these strategies. From a relatively modest starting point globally, this trend is expected to accelerate rapidly, however, with three-quarters of Family Offices planning to increase their exposure in the coming year.
The survey interviews also revealed that Family Office interest in sustainable investing strategies accelerated during the COVID-19 crisis. Many indicated a heightened recognition of the needs of society, especially local communities, and the role that Family Offices can play in addressing them.
Commenting on the findings, Sheryl Needham, Managing Director, Head of EMEA Family Offices at BlackRock, says: “Many Family Offices saw the market turbulence caused by the pandemic as a period of short-term volatility, with the majority not looking to make material changes to their asset allocation. While we recognise Family Offices have a long-term investment horizon, we believe that the nature of the crisis will have a long lasting impact on economic growth, interest rates and corporate fundamentals leading to structural shifts across asset classes. It’s important that even long-term investors consider the resilience of their portfolios by reviewing their strategic asset allocation, to ensure they are positioned to navigate current markets, protect wealth and to harness opportunities through the recovery.
“Family Offices no longer see sustainable investing as a compromise on investment returns. However, while there is greater interest and pressure from the next generation of family members to better reflect their values, improving education on sustainable allocations and the adoption of a common framework for impact measurement will be key to ensure a more widespread integration of these factors into Family Offices’ investment strategies.”