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New FOX report reveals increased allocations to private investments

Family Office Exchange (FOX), a membership organisation for families, family office executives, and advisers, recently published the results of the 2019 FOX Global Investment Survey. 

Family offices are continuing move into private investments with a third of overall portfolios allocated to private equity (17 per cent) and real assets (16 per cent), according to the Family Office Exchange’s (FOX) 2019 FOX Global Investment Survey.

The report says that this allocation away from the traditional asset classes of equities and fixed income improved overall performance in a challenging year for stocks and bonds.

Another significant trend highlighted by the report across the average allocations of the past four years, is a continuing reduction in allocations to hedge funds (down from 12 per cent in 2014, to less than 6 per cent at the end of 2018).

Although the average overall portfolio return was essentially zero (-0.2 per cent), family offices were surprisingly satisfied with the results. Almost half stated that they were either “Very Satisfied” (18 per cent) or “Somewhat Satisfied” (30 per cent) with their 2018 investment performance; 41 per cent said “Neither Satisfied Nor Dissatisfied” and only 11 per cent said they were “Very Dissatisfied”. 

“Over a longer period of time, it is interesting to evaluate family offices’ performance relative to industry benchmarks, with family offices investing broadly across asset classes and along the liquidity spectrum,” said Kristi Kuechler, Managing Director of the Investor Market at Family Office Exchange. “Even after a tough 2018, family office returns handily exceeded the strong five-year returns generated from a US-focused stock/bond portfolio.” 

While traditional Asset Classes generated low or negative returns, rivate Equity (both direct and funds) generated expected double digit returns in 2018 (11.1 per cent Private Equity Funds and 16.8 per cent Private Equity Direct). Given the significant dispersion between investors in public markets vs. private markets in 2018, it is no surprise that those families that had meaningfully higher allocations to Private Equity and Real Estate saw the highest returns. 

Family offices continue to reevaluate traditional approaches to investing, highlighted by respondents’ accelerating interest in making direct investments in real estate and operating businesses outside of a fund. Of the 84 per cent of families who make direct investments, 88 per cent invest directly in real estate. Almost three quarters (71 per cent) invest in operating businesses – outside of the core business, if there is one.

This annual survey of investor attitudes and behaviours provides a peer perspective from family offices on asset allocation and investment performance. The average investable asset base of those completing the survey is USD586 million, with 17 per cent of respondents overseeing more than USD1 billion of investable assets.

Just under half continue to have ownership of the original business that generated the family’s wealth (44 per cent). More than three-fourth of respondents are led by Generations 1 and 2 (77 per cent) and 82 per cent of the family offices are headquartered in the United States. The Non-US survey participants have family offices that are headquartered in Australia, Belgium, Canada, the Caribbean, Chile, Mexico, Saudi Arabia, Spain, and the UK. 

The survey was completed in January and February 2019 and asked about their allocations and performance as of 31 December, 2018. 

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