The world’s wealthiest families plan to allocate more money to private equity after the asset class helped drive an average 15.5 percent rise in the value of their investments in 2017, according to a survey.
Some 311 family offices — set up to manage the wealth of one or more rich families — took part in the survey, conducted by Swiss bank UBS, whose wealth management arm manages around $2.5 trillion in assets, and Campden Wealth.
The strong gains in 2017 followed an average return of 7 percent in 2016 and were driven by developed and developing market listed equities, which returned 23 percent and 38 percent, respectively, and private equity, which returned 18 percent, the survey showed.
For 2018, the family offices expected their direct venture capital and private equity investments to deliver the best returns, of 13 percent, followed by private equity funds, at 11 percent, and direct real estate investments, at 8.4 percent.
“Family offices have delivered their strongest returns since we began measuring their performance five years ago,” Sara Ferrari, head of UBS’ Global Family Office Group, said.
“This reflects the bull market, as well as family offices’ ability to take a long-term approach and embrace illiquidity.”
Private equity investments typically involve locking money up in a venture for many years, as opposed to listed equity markets which can be sold quickly.
The average portfolio, worth $808 million, was allocated 28 percent to listed equities, including 6 percent in developing markets. Sixteen percent was in fixed income, with 46 percent in so-called ‘alternatives’ like private equity and real estate.
A further 3.3 percent was in commodities, while 7 percent was in cash, the survey showed.
Allocations to hedge funds, however, continued to be trimmed and represent just 5.6 percent of the average portfolio after several years of weak average performance and high fees relative to those run by traditional asset managers.
The favorite style of hedge fund for those who did invest was long-short equity, which can bet on both rising and falling share prices, at 19 percent. Global Macro, which bets on macroeconomic trends, was second most popular, at 13 percent.