European Family Offices Look Back On Year Of Meager Returns - Report

Tom Burroughes

13 December 2012

The wealthiest families in Europe suffered the lowest investment returns in five years as they held high cash and property exposure, which puts more pressure on them to preserve wealth rather than create it in the foreseeable future, research from Campden Wealth shows.

In a report, Back to Business – Family Offices Adapt to the New Normal, it was found that average annual returns were a relatively meager 3.6 per cent among single family offices and 2 per cent for multi-family offices for the 12 months to the middle of 2012.

Campden Wealth’s report, now in its fifth year, surveyed a total of 60 SFOs and MFOs, each managing assets worth between €50 million and €1.5 billion.

As the financial crisis took hold, SFOs moved out of equities and bonds into more direct and physical assets such as cash and commodities. These organizations also boosted exposure to such “real assets” as farms, forests, art collections and antiques. With multi-family offices, their asset allocation to emerging markets rose to 20 per cent in 2012 from 14 per cent a year earlier. Despite recently disappointing returns, some family offices report a tendency for increased allocations to higher-risk asset classes in the next three years, the report said.

One UK-based SFO said in the survey: “We’ve not performed as well as we would like or need to sustain our growing family’s needs. When we conducted an analysis of our investment style we found that we had broken some of the fundamental principles of investing that have serviced the family very well over the years – this hasn’t delivered the right results. We are shifting our style back to what works best.”

“Before the financial crisis, family offices were at the cutting edge of smart allocation to new asset classes, such as hedge funds and commodities, often securing oversized returns. The message from our survey this year is that family offices now find it much more challenging to outperform, not least given an understandable need to manage portfolio risk and maintain long-term investment strategies,” said Andrei Postelnicu, director of research at Campden Wealth.

Among other findings, was that real estate has become the single largest asset class for SFOs, whose property allocations are double those of MFOs. Meanwhile, views on the risks and opportunities in the eurozone vary depending on how close a family office is to the source of turmoil, and family offices are investing over short time horizons due to uncertainty.

The report was carried out with support from UBS.