Family Office Returns in 2015 Sagged Due to Challenging Markets

Global family office portfolios returned a meager 0.3% in 2015, Campden Wealth Research and UBS reported Wednesday.

This compares with returns of 8.5% in 2013 and 6.1% in 2014.

The report calculated that the average North American family office returned 0.3% in 2015, outpacing those in Asia/Pacific, which were flat, and in emerging markets, which were down 0.6%. European portfolios showed the strongest regional performance, up 0.6%.

The report noted family offices’ sluggish performance contrasted sharply with endowment funds at Yale, Princeton and Harvard, which were up more than 10% in 2015, although U.S. endowments on average returned a more modest 2.4%.

“The endowment funds of top universities tend to be prepared to take greater risks than the average family office, and often have much lower allocations to cash and fixed income,” Campden Wealth’s direct of research Stuart Rutherford said in a statement.

“There is also more stability in their investment approach and management because they don’t have to navigate changes to family control and investment objectives. This enables endowments to seek higher returns in challenging market conditions.”

Campden Wealth conducted an online survey between February and May of 242 family offices around the world with average assets under management of $759 million, including 69 family offices in North America with average assets of $912 million. Three-quarters of participants were single family offices. Campden Wealth also invited a select group of multifamily offices to participate.

The survey showed 36% of family offices were pursuing a growth strategy this year, up from 29% in 2015. However, strategic asset allocations revealed a high degree of regional variation.

Family offices in the U.S. exhibited the most optimism, with a big move to growth allocations. Emerging market participants were much less stressed than in 2015 and cut their preservation allocations dramatically.

In contrast, European participants were decidedly negative, demonstrating their risk-off stance with increased preservation allocations and a cut in growth allocations.

Investment strategies by region

2016                     Growth                  Preservation          Balanced

Global                     36                          21                          43

North America         63                          4                            33

Europe                   13                          33                          53

Asia/Pacific             33                          25                          42

Emerging markets   17                          17                          67

 According to the report, private equity investments became more central to family offices over the past year, currently representing nearly a quarter of the average overall portfolio.

Multi-year participants in the UBS-Campden studies recorded a 2.3 percentage point increase in holdings of private equity investments to 22.1%. At the same time, the average family office reduced its holdings in hedge funds from 9% to 8.1% last year amid concerns about performance and fees.