Risk appetites rise at family offices around the world
By Novia Lu
Family offices and ultra-high-net-worth families have been cautious with their investments in the past two years but the gloves are coming off, with many counting the cost of being overweight in cash
- Family offices increase risk appetite
- Optimism in global economy
- More courting alternative assets and riskier investments
Family offices around the globe have shown a growing risk appetite and are ready to invest again. There is a wide range of family offices, including single- and multi-family offices, but all use third-party private client service providers to support the preservation and protection of their clients’ wealth. Single family offices serve ultra-high-net-worth individuals.
Family offices service high-net-worth (HNW) families from Singapore, China, Japan and India; the United States (US) and Canada; Europe and Scandinavia; Saudi Arabia and United Arab Emirates; and South Africa.
Recent survey findings by Ocorian showed that the overwhelming majority of private client service providers are predicting an increase in the risk appetite from their clients in the year ahead. Around 87% expect a shift to riskier assets, with around a third or 31% forecasting a dramatic increase in risk-appetite of the family offices they work for.
Just one in 10 expect family-office risk appetites to remain unchanged in the year ahead while only 3% forecast family offices will become more risk-averse.
It is a stark contrast to the period between 2020 and 2022, where we saw many family offices and HNW families retrench and focus on cash. Almost all service providers, some 99% surveyed, agreed family offices have been overweight in cash for the past two years and are now ready to invest again.
Optimism in global economy causes a shift in attitude
Recent years have seen unprecedented events that led to heightened fears of an impending global recession. The COVID-19 pandemic drove worldwide lockdowns and devastated economies, while unstable political environments further exacerbated the gloom.
That in turn brought huge volatility to investment markets, sending many investors looking for safe havens. Just as the worst of the pandemic receded and economies opened up, the Russian invasion of Ukraine and global sanctions hit commodity prices.
The shock to energy prices added to the inflation arising from pent-up demand at the end of the pandemic, sending prices soaring worldwide and inflamed by interest rate increases from historic lows in most major economies.
Against that background, being overweight in cash made sense but the economic ennui is shifting. There is growing optimism about the global economy, with 57% of family offices saying there is a feeling inflation has peaked, while 54% believe markets are over the worst and set for recovery. They may be proven wrong by the banking crisis but there is overall greater economic confidence.
Family offices have quite rightly taken a conservative approach to risk in the past two years given the high levels of volatility and uncertainty in global markets. That, however, is changing and there is an increasing appetite for risk across the sector as they look for higher returns.
Expecting higher returns from alternative assets and riskier investments
Many family offices, particularly those run by younger, tech-savvy generations are interested in investing in technology companies and other sectors they know well. This requires a deeper understanding of emerging technologies—from digital assets, space technology investments, web 3.0, cyber security, and so forth—and importantly, a willingness to take on higher levels of risk.
The Asian market seems to be bucking this trend, however, and those who are investing are still risk-averse. Asian investors are seeking to balance growth while protecting their assets, but that said, are not averse to looking beyond Asia for opportunities.
There is growing interest in alternative assets and riskier investments in general. More than half, some 56% of family offices said there is greater transparency around riskier and more specialist asset classes such as digital assets while 42% are encouraged by improved regulation in the sector.
Emerging market equities and investment-grade fixed income are the asset classes likely to see the most dramatic increases in allocations. Around 37% of family offices expect ‘dramatic’ increases in allocations to both asset classes over the next year while a further 36% expect an increase.
US equities plus alternative assets including hedge funds, private equity and private debt are also likely to see dramatic increases in allocations over the next 12 months.
Family offices have generally avoided risk in the past two years as they have conserved cash. Many may have recently sold businesses and have been undecided about how to invest the proceeds, which is understandable given the current volatility and economic uncertainty.
Nevertheless, the risk-averse attitude is changing. It is evidence of the strong growth in the sector as more family offices are established with more family members wanting to play an active role in managing their assets. The year ahead will see a return to risk but a continuation of growth across the sector.
Keywords: Family Offices, Risk-averse, Technology, Equity, Inflation
Region: Asia Pacific
People: Novia Lu