A mixture of continuing low interest rates and higher investment returns in 2014 is causing family offices (FOs) to seek more risk in their portfolios this year, recent research has revealed.
The Global Family Office Report 2015 from UBS and Campden Wealth revealed FOs are increasingly constructing portfolios that move away from preservation strategies and prioritise growth.
Just over one-fifth (21 per cent) of organisations highlighted preservation as their core concern for 2015, compared with 26 per cent last year. However, the proportion of FOs focusing on growth moved from 28 to 29 per cent.
“As offices move away from preservation strategies, they are taking on more risk with their asset allocations,” said Dominic Samuelson, chief executive officer at Campden Wealth.
“Restructuring of the FO can be seen as highlighting this change in strategy, as family offices seek to garner more value.”
However, this growing appetite for risk could be pushing more offices towards structured investments and derivatives. Structures can help diversify and hedge against the riskier parts of a portfolio.
Vincente Garcier, managing director at Societe Generale Corporate and Investment Banking, said structured investments are becoming increasingly sought after among FOs.
“[A] popular use of these instruments is to design investment strategies in which derivatives offer a potential yield-enhancement and a protection against drawdown risks on top of a base investment, such as an equity portfolio,” he told Risk.net earlier this year.
Mr Garcier said bespoke structures and derivatives offer simplicity, flexibility and optimisation. For example, an over-the-counter instrument can be specifically tailored to meet an office’s defined investment objectives.
The Global Family Office Report may provide some evidence of this shift towards diversification. The survey showed 50 per cent of FOs favoured a balanced portfolio in 2015, while just 46 per cent of respondents said the same last year.
These results indicate that although more organisations are focusing on risk, there has also been a corresponding rise in FOs looking to diversify their holdings.
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