BlackRock & Juniper Place release their latest survey on Market Outlook, Asset Allocation and Family Office Responsible Investing
The very distinctive characteristics of Family Offices “are reflected in their response to the crisis. However, through this survey and these in-depth interviews that we conducted, we identified three key themes ”
The survey indicated that despite a challenging economic outlook, few family offices felt the need for material change to their portfolio (only 23% anticipating making material portfolio changes).
Many family offices cited their long-term investment horizon and high allocations to alternatives as the driver of this.
However, family offices have growing concerns, particularly around diversification, equity valuations, liquidity needs and the spectra of inflation. BlackRock’s Investment Institute (BII) would argue that the nature of the crisis and its long-term implications warrant a review of asset allocations.
« Given the need to diversify portfolios and access economic growth beyond core markets, Family Offices stated they will place greater emphasis on geographical diversification, and particularly China going forward. »Global Family Office
To the question of which regions Family Offices would anticipate increasing their exposure to, 60% have chosen Asia-Pacific region, against 42% North America and 35% to Europe, and 84% consider China as an investment option distinct from the rest of Asia.
«The volatility of Chinese equities has decreased over the last few decades and the asset class is more independent and less correlated than other equity markets. However, (…) Chinese equities remain more volatile and higher risk then other developed markets. We also believe Chinese government bonds offer diversification benefits as they move independently of other developed market government bonds.”»Global Family Office
Globally, BlackRock encourage investors with long-term investment horizons to review their strategic asset allocation to ensure it takes account of a different macro environment emerging in the new normal and a higher degree of uncertainty in future estimates of asset class returns” ; BlackRock refers for instance to the growth in the technology sector or the nominal government bonds, versus inflation-linked bonds best in an environment where nominal yields are capped. ».
Alternatives for diversification and returns
-No radical change in the private markets for the Family Offices with 10-25% of their portfolio allocated to private equity and 55% reporting that they expect to grow their exposure to this asset class
-Private debt is the second most popular asset class, with 87% of Family Offices allocate 10% or less to private debt and two thirds indicating that they intend to increase their exposure in the future.
“Many stated they are seeking enhanced yields and alternatives to public fixed income allocations.”Global Family Office
– «Hedge funds appear to be enjoying a resurgence as many recognise that they could be well placed to profit from a more volatile and dispersed environment” with 38% intending to increase their exposure to the asset class and 58% planning to change their allocation to hedge funds in the coming year. A big majority of them (80%) have selected equity long/short as their preferred strategy in the current climate, reflecting the need to mitigate beta exposure.
-Like Private debt, real estate and infrastructure are all seen as capable of generating long-term yields. Real Estate represents a steady component of most Family Office portfolios, with 10-25% on average of their overall portfolio, while infrastructure (approximately 5%) is an upstream trend with 62% announcing an increase in their current portfolio exposure (mainly in EMEA regions).
Global recognition of the sustainable investing with roughly 80% of Family Offices involved in any form of sustainable investment; 2020 been certainly the pivot year when Family Offices recognized that sustainable investments do not requires compromises on performances.
«However, addressing the remaining hurdles of education and the absence of common impact measurement methodologies could lead to more widespread integration»Global Family Office
One reason that could explain the low representation of sustainable investment in the overall portfolio of the FO questioned :
34% of the respondents only allocate 1-5% of their portfolio in sustainable investment
19% allocate up to 10%,
10% allocate up to 25%
4% allocate more than 51%
and 7% of the global respondents have an entire sustainable approach
Family offices are not driven by financial profit alone. Values and legacy also matter. The survey underlines the greater interest and pressure from the new generation to adopt sustainable practices, which may be explains the high level of engagement shown by respondents in regards to their exposure to sustainable investments in the coming year (74% indicating strong and significant increase).
BlackRock Global Family Office survey is available here
Article: Joana Foglia Source : BlackRock