Head of UBS’ Family Office Group highlights key takeaways from new report
Family offices see a host of macro uncertainties on the horizon, and they’re shifting their strategic allocations accordingly. That may be one of the first core takeaways from UBS’ Global Family Office Report released today. The survey of 307 family offices across 30 markets serving an average net worth of $2.7 billion (USD) found a growing desire to reconsider strategic allocations, a push towards stronger governance policies, and a need to address succession planning issues.
Voyt Krzychylkiewicz, Managing Director and Head of UBS’ Family Office Group for Canada, highlighted some of the growing concerns expressed by family offices, notably geopolitical risks and high sovereign debt levels. He noted some of the asset allocation decisions that family office groups are considering, pointed out where Canada sits in these global stances, and shared what financial advisors can learn from the decisions being considered in the family office space.
“I thought it was quite interesting that on a five-year view, debt crisis was the second highest risk after geopolitical risk,” Krzychylkiewicz says. “This survey was done from effectively end of January through to the end of March. And in the middle of that the Iran conflict flared up. So I suppose it’s perhaps not surprising that geopolitics is the dominant [risk]. But to see debt crisis not far behind that on a five-year view I think highlights concern around levels of debt, whether it’s household or sovereign debt.”
From a Canadian perspective, Krzychylkiewicz saw a growing shift among Canadian family offices to diversify their jurisdictions. He notes that Canada, like the US, has tended towards a heavier home bias, but that this survey found a growing shift away from activities and structures positioned in only one or two jurisdictions. Global diversification, he notes, has become one of the core means by which family offices are seeking to manage risk.
Another area of potential risk that the survey highlighted was in the global reserve currency. The survey found a growing consensus, even among US family offices, that the US dollar could weaken as the global reserve currency in coming years. To that end, many family offices reported a growing desire to reduce their holdings of US dollar-denominated assets. Krzychylkiewicz sees this as a wider strategic assessment of where risk may lie for these family offices.
“60 per cent of family offices are looking at effectively reviewing their strategic asset allocation,” Krzychylkiewicz says. “There’s a fair amount of introspection for family offices around the world. That stat was fairly surprising… In previous years you’ve kind of seen it sitting around 20 and 30 per cent. For it to be sitting at 60 per cent I think just highlights that there is a degree of broader concern and reflection on how resilient the portfolios are where potential risks sit.”
That’s not to say these family offices are making wholesale changes. The survey found a preference towards selective tilts, including more interest in emerging market equities, gold, and infrastructure. Real estate is being pared back somewhat while developed market equities and fixed income remain a core part of family office portfolios, at around 41 per cent.
Performance on public markets has been attractive for some family offices, Krzychylkiewicz explains, though they’re looking to broaden geographic allocations. He also notes that some private asset allocations are being reassessed on the question of whether their illiquidity premiums are still intact, and high enough to justify their innate illiquidity. There is still a strong desire to find uncorrelated asset classes as a means of managing risk, but there may be shifts in what those asset classes are.
Beyond asset allocation, the survey found a renewed focus on governance and succession planning among family offices as they facilitate the intergenerational wealth transfer. Most family offices surveyed have adopted some form of wealth succession plans for the families they serve, engaging largely with heirs between the ages of 30 and 39 to ensure a fulsome succession plan. Krzychylkiewicz notes that this work is acute in Canada, which has a higher proportion of 1st generation wealth builders working with family offices, contrasted against more established family wealth in places like Europe. Governance and education, he says, are becoming watchwords in the space as Canadian family offices prepare for the transition.
While the work being done by family offices tends to be highly sophisticated and aimed at the highest echelon of client, Krzychylkiewicz believes there are takeaways for advisors who want to upgrade their services.
“On that broader conversation around portfolio resilience, there’s maybe an opportunity here to spend some time with clients to understand where they potentially see the risks. Because sometimes these risks can be personal liquidity related issues,” Krzychylkiewicz says. “Particularly for people who have significant wealth that may be passing it on to the next generation, there may be conversations around how to begin that process. People can be hesitant to talk about their wealth with their own children, and advisors can play a role in facilitating that conversation.”
