#长文创作激励计划#
Families have generally re-evaluated their portfolios and increased their allocations to fixed income and private equity. Against the backdrop of continued upward financial markets, fears of a recession, and high bond yields for many years, many family offices are paying more attention than usual to reassess their asset allocation. More than half of respondents increased their fixed income investments, 38% expanded their private equity investments, and another 38% cut their public equity allocations.
The main concerns of respondents were many and went beyond finance. The top three concerns for family offices are: preserving the value of family assets (68%), nurturing the next generation to be responsible wealth owners (60%), and ensuring that the family shares a common purpose and vision (52%). Family offices are particularly concerned about the impact of inflation (56%), interest rate hikes (51%) and US-China relations (48%) on financial markets and the economy.
Portfolio growth in the first half of 2023 and general optimism for the year ahead. In the first half of 2023, amid rising asset prices, two-thirds of respondents expect portfolio market capitalization to grow accordingly. Notably, almost all respondents expect a positive portfolio return over the next 12 months.
Most families continue to value direct investment, but some are cautious. Direct investment remains a key focus area, with 80% of family offices participating. However, while 66% of respondents said they were looking for investment opportunities in undervalued assets, some 38% had suspended new direct investment due to economic uncertainty.
While most family offices focus on wealth management and investment management, few focus on promoting family unity and long-term stability, and families are increasingly concerned about this. Family offices have always placed more emphasis on wealth management (74%) and investment management (55%), and have neglected to promote family unity and long-term stability (21%). But starting in 2022, more than half of the families are most concerned about nurturing the next generation to be responsible wealth owners and ensuring that the family shares a common purpose and vision. The fact that the functions of the family office are not fully aligned with the family's priorities is a cause for concern, as the family's concerns reflect the dual need to accumulate wealth for the family and for the family to manage it.
Family offices are developing the fastest pace of specialization in their investment functions. Family offices were the quickest and best to professionalize the investment function, such as setting up investment committees (64%) and developing investment policy statements (IPS) (51%). The professionalisation of the non-investment function of family offices is a more lengthy process, including the establishment of a board of directors (48%) and the development of a succession plan (31%). Families themselves also need more time to establish more formal professional paths, such as family constitutions (32%), family succession plans (28%) and education plans for the next generation (21%). The latter two are particularly important for families.
Changing the family situation and adjusting the business landscape is both a challenge and an opportunity for the family office. External forces such as disruptive technological developments, the intertwining of globalization and deglobalization, and socio-political-economic changes pose challenges and opportunities for business and investment. The same is true for internal drivers, including the intergenerational transmission of family members, the evolution of values, greater diversity and geographically dispersed family members. As a result, 52% of respondents believe that the biggest challenge comes from adapting to changing circumstances, followed by meeting the needs and expectations of family members (50%).
The wide gap between the translation of sustainable investment intentions into action is narrowing*. While there is still a considerable gap between the translation of sustainable investment intentions into action, it is narrowing with the growing focus on sustainable development and the growing diversity of investment themes and investment instruments. Families say access to sustainable investment opportunities with strong financial performance could further narrow this gap (51%).
The focus of philanthropy has not yet been adjusted to what is important to the new generation. While the focus of philanthropy has not yet been adjusted to the priorities of the new generation, families are increasingly aware that a generational shift in philanthropy is coming. Families are now looking for support to help the next generation get involved in philanthropy, plan for the succession of the next generation of philanthropic leaders (38%), and integrate philanthropy into the family's overall wealth planning strategy (34%). Increasing allocation to high-quality fixed income and alternative investments Top three concerns are inflation, interest rate hikes, and U.S.-China relations Portfolio value rebounds in 2023 after 2022 decline Almost all respondents expect portfolio appreciation in the coming year Against the backdrop of continued upward financial markets and recession fears in 2023, many family offices are more focused than ever on accelerating their asset allocation, adopting a strategy that is both defensive and risk-on. Notably, more than half of the respondents said they had increased their allocation to fixed income, 38% increased their allocation to private equity, and another 38% cut their allocation to public equity.
This means that family offices have adjusted their usual investment model, i.e., taking a long-term view, deploying patient capital, and making marginal short-term adjustments. In terms of financial markets and macroeconomics, the top three concerns for family offices are inflation (56%), interest rate hikes (51%) and US-China relations (48%). However, the order of the three items varies by region, with interest rate hikes being the top concern in North America (64 percent), the Russia-Ukraine conflict in Europe and the Middle East (52 percent), China-US relations in the Asia-Pacific region (64 percent), and inflation in Latin America (63 percent). With the widely predicted recession yet to come, portfolio market capitalization rebounded, reversing last year's losses. Two-thirds of family offices report year-to-date portfolio appreciation. Notably, almost all respondents expect positive portfolio returns over the next 12 months.
Last year's asset allocation changes - a global overview. We have noticed a significant shift in asset allocation over the past year. About half of the respondents (51%) have increased their fixed income allocations due to the sharp rise in yields. This is a remarkable increase from two years ago, when only 20% of respondents increased their allocation to fixed income. Among all asset classes, the difference in cash allocation was the largest, with 47% of respondents increasing their cash allocation and 24% decreasing it. Thirty-eight percent of respondents increased their allocation to private equity, a significant slowdown from the previous two years (63% and 52%, respectively). Real estate allocations were the most stable, with 56% of respondents maintaining their weightings unchanged and 29% increasing their allocations to real estate. Public equity allocation had the largest drawdown, with 38% of respondents reporting a reduction in public equity, compared to 19% in 2021 and 28% in 2022.
Divided by asset management scale. Smaller family offices are more likely to overweight fixed income (50% vs. 52% respectively) than larger family offices, and are more likely to reduce their allocations to fixed income (6% vs. 14% respectively). In addition, smaller family offices are more likely to reduce their public equity allocations (34% vs. 43%, respectively) than larger family offices, and are less inclined to overweight public equity (26% vs. 15%).
By region. In EMEA and Latin America, fixed income was the largest (67% and 60%, respectively). In North America and Asia-Pacific, cash allocations were the largest (51% and 54%, respectively). On the other hand, the largest declines were in public equity assets (36%, 44% and 40% respectively) in North America, Latin America and APAC, while the largest declines in EMEA were in cash assets (37%).
Near-term concerns affecting financial markets and the economy
Global Overview. Among the near-term concerns of family office executives, the twin concerns of inflation and interest rate hikes are at the top of the list (56% and 51%). Concerns about U.S.-China relations and the stability of the financial system followed closely at 48 percent and 38 percent, respectively.
Divided by asset management scale. Overall, larger and smaller family offices show similar levels of concern about key issues facing the global economy and markets. The biggest difference between the two is that smaller family offices are more concerned about the stability of the financial system than their larger counterparts (44% vs. 34%, respectively).
By region. The level of concern for these factors also varies across regions, with North American family offices top of mind rising interest rates (64%), EMEA family offices top of mind about the Russia-Ukraine conflict (52%), Asia-Pacific family offices top of mind on U.S.-China relations (64%), and Latin American family offices top of mind on inflation (63%).
Year-to-date Portfolio Market Cap Change Forecast (%)*
Global Overview. As the widely predicted recession has not yet materialized, the market capitalisation of respondents' portfolios has rebounded year-to-date after last year's losses. More than two-thirds of respondents reported an increase in the total market capitalization of their portfolios between January and June 2023, with most achieving an increase of 0% to 10%. Despite the strong performance of financial markets during this period, more than a quarter of respondents reported a decline in the value of their portfolios. About 12% of respondents fell by more than 10%.
Divided by asset management scale. Overall, there is little difference between the estimates of year-to-date market capitalization changes between larger and smaller family offices.
*The questionnaire was submitted by Citi Private Bank Family Office clients and was collected from June 7 to August 9, 2023.
By region. Asia Pacific has the highest percentage of respondents (36%) and Latin America has the lowest percentage (18%) of respondents reporting a decline in portfolio value. Latin America and EMEA have the highest percentage of respondents who add value (73% and 72%, respectively).
Investment sentiment across all asset categories in the coming year
Global Overview. To continue to adapt to changing market conditions, family offices plan to further adjust their portfolios over the next 6 to 12 months. Family offices are bullish on global developed market investment-grade fixed income (45%), private credit (44%), direct private equity (38%) or private equity funds (32%). As inflation begins to subside and build up investment opportunities, more family offices are looking for cash assets. 34% of family offices are bullish on cash, while only 7% are bearish on cash. The U.S. dollar is likely to peak, which is positive for many markets outside the U.S. Against this backdrop, there has been a polarization of investment sentiment towards global developed and emerging market equities. About 24% of respondents are bullish and about 22% are bearish. Bearishness on global developed market corporate high-yield fixed income, emerging market fixed income and hedge funds has generally declined since last year's survey, but pessimism is still stronger than optimism. Respondents' attitudes towards property remain mixed due to concerns about interest rate hikes, refinancing plans and vacancy rates.
While family offices are increasingly concerned about the challenges of direct investment, they are not actually cutting their positions or switching to private equity funds. About half of the respondents plan to maintain their allocation to private equity funds (48%) and direct investment (47%). Respondents are slightly more optimistic about direct investment (38%) than fund investment (32%). The asset classes with the highest net confidence index (i.e., the proportion of respondents planning to add to their allocations minus the proportion of respondents planning to underweight) are global developed market investment grade fixed income (+34%), private credit (+30%), cash (+27%) and direct private equity (+23%). The asset classes with the lowest net confidence index are crypto (-41%), real estate (-7%), and global developed market corporate high-yield fixed income (-6%). [To be continued] Please continue to close the next issue.