Family offices are unique entities dedicated to managing the wealth of ultra-high-net-worth families. Unlike traditional investment firms, family offices take a long-term view of investing, aiming to preserve and grow the family's wealth across generations. This approach is crucial for ensuring that the family's financial goals and values are met, and it requires a well-thought-out investment strategy, robust asset allocation, and effective risk management.
At the heart of a family office's investment strategy is the principle of long-term investing. This means looking beyond short-term market fluctuations and focusing on sustainable growth. As highlighted by Pacific Eagle Asset Management (Peam), one of the longest-established family offices in Singapore, "Peam, like many other family offices, takes a long-term view of investing, with the aim of preserving the family's wealth". This long-term perspective is essential for maintaining the family's financial stability and ensuring that wealth is passed down to future generations.
Strategic Asset Allocation
Asset allocation is a critical component of a family office's investment strategy. According to the UBS Global Family Office Report 2021, the global average family office strategic asset allocation dedicates 32% to equities, 18% to fixed income, 18% to private equity, 13% to real estate, 10% to cash, 6% to hedge funds, and the remaining 3% to gold, precious metals, commodities, and art and antiques. This diversified approach helps balance risks and returns, ensuring that the family's portfolio can withstand market volatility and achieve long-term growth.
Emphasis on Alternative Investments
Family offices often have a significant portion of their portfolios allocated to alternative investments, such as private equity, real estate, and hedge funds. These investments offer higher potential returns and diversification benefits compared to traditional asset classes. For instance, the UBS 2023 data report indicates that family offices allocate 19% to private equity and 13% to real estate. This focus on alternative investments allows family offices to capitalize on unique opportunities and achieve superior investment performance.
Risk Management and Portfolio Diversification
Effective risk management is crucial for family offices to protect their wealth from market downturns and other financial risks. This involves diversifying the portfolio across various asset classes, sectors, and geographies. As noted in the Citi Private Bank's report on investment management best practices for family offices, "consistent, long-term portfolio returns are only achievable through a systematic and repeatable process, proper resource alignment, and rigorous communication among key participants". By implementing robust risk management practices, family offices can mitigate downside risks and ensure the stability of their investments.
Sustainable and Thematic Investing
In recent years, family offices have increasingly focused on sustainable and thematic investing. Environmental and social issues are driving long-term thematic equity investment trends, with over 86% of family offices planning to invest in health tech within the next two to three years. Additionally, digital transformation, automation, robotics, smart mobility, and green tech are attracting significant family office capital. This shift towards sustainable investing aligns with the values of many ultra-high-net-worth families and supports long-term wealth preservation.
Working at a family office means embracing a long-term investing view that prioritizes wealth preservation and growth for future generations. This approach requires a well-defined investment strategy, strategic asset allocation, effective risk management, and a focus on sustainable and thematic investments. By adhering to these principles, family offices can achieve their financial goals and ensure the continued prosperity of the families they serve.
