Almost three-quarters of family office portfolios fell in value since the start of the year as market volatility hammered almost all assets, according to a new Citibank global survey.
The 2022 Citi Private Bank study of the sector – the fourth in the annual series – found a “sizable 43% experienced a decline greater than 10%, which is quite the contrast to last year where fewer than 11% of family offices reported any decline”.
But most of the 126 family offices contributing to the Citi poll remained upbeat about future prospects after the rough ride during the first few months of the year (data collection ended in July).
“Despite the concerns and perhaps a reflection of their sentiment that the market may have bottomed out, there is a high degree of optimism for portfolio returns over the next twelve months, with 80% of the family offices expecting portfolio gains and 62% expecting a 5% or higher increase in portfolio value,” the report says.
And more than 20 per cent of family offices chalked up portfolio gains during 2022 with the winners providing some evidence of growing professionalism in a sector Alexandre Monnier, Citi global head of family office services, says still displays “many cottage industry characteristics”.
The study says an analysis of those groups reporting positive returns in 2022 “directionally appears to validate that family offices that use leverage, direct investments, external investment consultants and independent investment committees have fared relatively better year to date”.
About 75 per cent of family offices now have an investment committee or board while 44 per cent of those include independent members.
“A majority (55%) of family offices have an active investment policy statement, but the percentage varies significantly whether the family is first generation (44%) or second generation and beyond (63%),” the Citi report says.
Overall, family office portfolios lean heavily on listed equities (23 per cent) with relatively high allocations to property (20 per cent) and private equity (15 per cent).
“Cash and fixed income total 25% (10% and 15% respectively), while concentrated positions still account for 12%,” the study says.
Family office appetite for crypto-assets also appears to be on the wane following a flurry of interest over the previous couple of years.
The report says respondents “appear to have concluded their research and elected not to join the space or have left the space, as 51% of family offices stated crypto assets were not a priority or interest of the family in 2021, whereas in 2022 this number grew to 68%”.
“The number of families in research mode or having made minimal commitments decreased by a total of 10% as well,” the survey says. “Based on the feedback received at our Family Office Leadership Program, most choose to invest in picks and shovels (i.e., infrastructure) versus the cryptocurrencies themselves.”
Environmental, social and governance (ESG) or sustainable investing is also low on the family office investment agenda as 60 per cent of those surveyed have yet to even consider “aligning some of their portfolio with such themes”.
Unsurprisingly, about three-quarters of respondents rated inflation rated as a top global economic fear followed by recession worries (54 per cent) and geopolitical uncertainty (53 per cent).
“The top-three family concerns include preserving the value of their assets (65%), preparing the next generation to be responsible wealth owners (51%) and managing transitions (43%), indicating a growing awareness of the dual necessity to prepare wealth for families and families for wealth,” the study says.
Just over half of the 126 family offices covered by the Citi survey reported assets under management of US$500 million or more and 12 per cent managed portfolios of US$2 billion plus.