APAC family offices outperform global peers in 2019: UBS GWM
Family offices in the APAC region delivered 6.2% average returns between Q1/Q2 2018 and Q1/Q2 2019 to outperform all other regions, according to The Global Family Office Report 2019 jointly launched by UBS Global Wealth Management and Campden Wealth Research.
The survey showed that the strong returns of APAC family offices was largely due to a bias toward developing market equities and bonds, which respectively received an average allocation of 14% and 11%, versus the global average of 7.4% and 4.3%.
Elaborating on the results, Enrico Mattoli, head global family office, Greater China at UBS GWM told Asian Private Banker that a home bias in APAC and, in particular, in Greater China, is a trend that will likely persist.
“People tend to invest in markets and industries they understand and that they are familiar with," Mattoli shared. "Investment performance of these family offices will be impacted by this continued home bias.”
On the triggers that could change the asset allocation of Asia's family offices, Francis Liu, Greater China UHNW head at UBS GWM remarked that a significant shift will likely occur once global economic conditions improve.
"The interest rate environment , geopolitical tensions, and the valuation of certain equities in developed markets are indicators of why family offices put their asset allocations in cash and equity portfolios," Liu explained, adding that currently, family offices in Asia are particularly overweight in fixed income and cash equivalents.
"That asset allocation will shift once global GDP growth starts having a positive turnaround or stabilise. If we look at the interest rate environment — typically, based on the market outlook of 3-4x interest rate reduction, this would be an economic indicator in the upcoming quarters for family offices to have a major shift in asset allocation."
Looking specifically at fixed income, Mattoli observed that family offices have invested considerably in the Greater China market, with plenty of issuances coming from Hong Kong conglomerates and Chinese real estate companies.
"Fixed income remains a favourite topic and issuances will continue next year," he said, additionally citing that the refinancing wall for the Chinese real estate sector alone next year is estimated to be above US$60 billion.
"This is not a surprise because they tend to issue short 1-3 year denominations and next year happens to be the 3-year maturity cycle. Every year, these maturities have been successfully extended."
Further, the report revealed that over half (56%) of APAC family offices believe that the economy will enter into a recession by 2020. Reflecting recession fears, 46% intend to focus on risk mitigation, 39% on taking advantage of opportunistic events, 54% on upping cash reserves, and 22% on reducing leverage exposure within their investments.
"That is understandable and especially in this region where they are going to be disproportionately affected by trade tension," said Mattoli, adding that while UBS expects both global and China growth to slow next year, a recession is not the bank's base case.
The Global Family Office Report 2019 is the sixth edition to-date. Researchers surveyed 360 family offices globally (average AUM of US$917 million) and in APAC, researchers surveyed 86 family offices (average AUM of US$600 million), including 21 in Hong Kong (average AUM of US$813 million) and 20 in Singapore (US$467 million).
