Europe’s wealthiest families have registered the worst investment returns in five years, due to an over-allocation of assets such as cash and real estate that underperformed compared to investments in government bonds.
That’s according to research by Campden Wealth, which said that, having failed to meet their 2012 targets, family offices believe they will focus on wealth preservation for the foreseeable future, moving away from capital generation.
Now in its fifth year, the 2012 report, entitled Back to business – Family Offices Adapt to the New Normal, surveyed 60 single and multi family offices across Europe. All managing assets worth between €50 million and €1.5 billion.
According to the family offices surveyed, average annual returns were 3.6% among SFOs and 2% for MFOs for the year to mid-2012, marking a significant decline from returns of around 8% reported in the previous edition of the survey.
One UK-based SFO commented 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.”
The onset of the crisis saw SFOs shifting away from investments in equities or bonds to more direct and physical investments, including cash and commodities. Other notable developments include an increased allocation to assets such as forests, farms, art collections, and antiques.
Meanwhile, MFOs’ emerging market asset allocation saw an increase to 20% this year from 14% in 2011, reflecting findings that despite recently disappointing returns, some family offices report a tendency for increased allocations to higher-risk asset classes in the next three years.
Andrei Postelnicu, director of research at Campden Wealth, said: “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.”