The wealthiest families share similar worries with other investors but how they prioritize concerns — and what they do to calm them — might differ.
Markets have fared relatively well during the war between Russia and Ukraine and other conflicts but geopolitical unrest was nonetheless a top risk at the 320 single-family offices surveyed by UBS for its 2024 global family office report published Wednesday. The annual expansive report was the biggest yet but the group of respondents remained distinctly wealthy, even relative to similar family-office research. The average net worth was $2.6 billion and the group’s collective wealth was more than $600 billion.
Over the coming 12 months, 58 of family offices said they are concerned about the possibility of a major geopolitical conflict and the impact it could have on their financial objectives. When asked to look five years into the future, they didn’t feel any better; geopolitical conflict remained the top concern of 62 percent. As unsettled as they might be by fractious relationships between nations and other groups, 61 percent of family offices said they are planning to take the same amount of risk in the coming 12 to 18 months.
Family offices, like many investors in 2023, shifted their asset allocations in response to higher interest rates — a move that also helped derisk them for other reasons. That could help explain why most single-family offices aren’t making huge changes to allocations in response to their top concern. The fixed income assets that family offices have rotated into are also heavily tilted toward North America, especially the U.S. About half of all assets on average are invested in the region, according to the UBS report. The average family office portfolio allocated 16 percent to developed market bonds, up from 12 percent in 2022. Family offices also said they plan to maintain this level in 2024. Over the next five years, 35 percent also indicated they intend to add to developed markets fixed income.
Read a deeper dive into family-office investment portfolios this Friday in Officium, a biweekly newsletter for family offices.
But beyond geopolitical conflict, UBS found that other worries are nearly as important to single-family offices: 49 percent are worried about climate change and 48 percent are concerned about a debt crisis.
Sustainability is becoming an increasingly important topic to family offices because they say it is affecting their investments and the long-term outlook for family operating businesses. Nearly half (47 percent) said it is important to manage financial and non-financial risks for both their investment portfolios and business operations. Meanwhile, 42 percent also said it makes commercial sense to care about it and 44 percent stated that sustainability is fundamentally important to the beneficial owner. Several large family offices that participated in the survey and have significant real estate holdings said that sustainability has become critical for them, UBS said.
The high levels of Western nation public debt is also considered unsustainable by family offices, according to the report.
Still, unlike geopolitical conflicts, the worries about the climate and national debts are long-term. Over the next 12 months, just 12 percent of family offices cited concerns about climate change risk with regard to their financial objectives and only 20 percent are worried about a debt crisis.
