Where the richest families are shifting their investments
Wealthy families are focusing more on publicly traded investments in developed markets—over less liquid alternative markets, such as private equity—while keeping an eye on the near-term consequences of a global trade war.
Nonetheless, a first-quarter survey by UBS Global Wealth Management of 317 family offices managing $1.1 billion each, on average, reveals some of the richest families in the world believe their strategic investment strategies are working. They are unlikely to make big asset allocation adjustments in the next few years.
Despite leaning toward public markets, 'these family offices are highly allocated to alternatives," Daniel Scansaroli, head of portfolio strategy in UBS's CIO Americas office, notes in an interview. That has allowed them to capture the extra returns typically available in riskier private markets 'for the better part of a decade," Scansaroli says.
In 2024, family offices globally boosted their stock allocations in developed markets to an average of 26% of their portfolios, up from 24% in 2023. U.S. investors had 30% of their portfolio allocated to developed market stocks last year. Of all families surveyed, 35%, on average, plan to increase their stockholdings further to a 29% allocation next year.
Globally, the family offices UBS surveyed allocate 56% of their assets to traditional asset classes and 44% to alternatives. U.S.-based families, however, have far more in alternative investments—54%—with only 46% in traditional assets. In five years, however, the mix could shift, as about a third of those surveyed expect to boost their private equity holdings in both direct investments and funds at that time, UBS said.
In both public and private markets, families appear to be boosting their investments in sectors that offer 'greater exposure to long-term growth trends, yields and diversification," according to the wealth manager's sixth annual Global Family Office report.
The long-term growth trends are in emerging technologies within healthcare, pharmaceuticals, electrification, generative artificial intelligence, and the transition to cleaner sources of energy.
Though some families have 'clear investment strategies," in these competitive fields, most are on a 'steep learning curve," according to the report. 'It's apparent that family offices generally are in the early stages of understanding how to invest in the space."
UBS conducted the survey from Jan. 22 to April 4, largely before President Donald Trump's so-called liberation day announcement on April 2 of steep tariffs on goods imported from countries across the globe roiled stock markets.
Still, 70% of families interviewed cited a global trade war as the top investment risk of the year, although those surveyed didn't view trade as a long-term risk. Instead, their long-term concerns rest on rising debt in the U.S. and 'how that could contribute to a long-term recession," Scansaroli says. According to the survey, 53% of families view a global recession as a risk in the next five years and 50% expect there will be a debt crisis in the next five years.
Another risk on family's minds? A major geopolitical conflict. More than half of families surveyed (52%) cited this as a risk for 2025, while 61% see it as a risk in five years.
One way families are accounting for risk is by boosting yield-generating assets. Although their allocations to private credit remain relatively small—at 4% in 2024—that is up from 2% each year of UBS's survey from 2021-23. Surveyed families making changes to their portfolios this year expect to up their private credit allocation to 5% to ensure their portfolio generates enough income, Scansaroli says.
Yields on private credit—which generally are floating rate—are now between 9% and 12%, he says. Moving to private markets allows investors to get 'away from the incredible market volatility that we've seen in the rate space," Scansaroli says.
Bond yields have been whipsawed by Trump's tariff policies. Moody's decision on Friday to downgrade the top-tier triple-A rating on U.S. government debt—becoming the last credit-ratings firm to do so—briefly pushed the yield on 30-year Treasury bonds to just above 5% on Monday. Yields rise when prices fall.
A striking detail in the report reveals U.S. family offices allocated 86% of their investments in North America—up from 74% in 2020—a figure that represents a larger home bias than demonstrated in any other nation, UBS said. North America is broadly popular, however, with 53% of all families allocating assets to the region, largely because of the growth of U.S. tech stocks.
Whether that home bias will change near terms because of U.S. economic policies remains a question.
'A lot of U.S. families brought their cash back to the U.S. as it was seen as a high growth region, while some non-U.S. families invested here for safety reasons, with the growth of corporate earnings and depth of capital markets," an anonymous U.S. family office client said in an interview with UBS. 'But the tree has been shaken in the last few months and investors are busy trying to figure out what the world will look like next week, next year, next decade. Things are very fluid and I think there'll be a reversal."
Write to Abby Schultz at abby.schultz@barrons.com
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