The second annual report by Merrill Lynch and Campden Research has found that Europe's single family offices responded to the economic crisis in 2008 by pulling their money out of equities and putting it into cash.
The Merrill Lynch/Campden Research European Single Family Office Survey 2009 shows a marked shift away from equities, which accounted for just 18% of the average portfolio in 2008 compared to 34% a year earlier. There was also a pronounced move towards cash, making up 26% of the average portfolio compared to 5% a year earlier. The survey reveals that SFOs expect their investments in equities to return to pre-crisis levels of about 34% in the next three years.
"In 2008 the culture of protection replaced the culture of growth. The credit crunch sparked a sharp downturn in shares and a contraction in credit markets. SFOs responded to this with a flight to cash," said Mark Nixon, Head of the Family Office Group EMEA, Merrill Lynch. "It is also clear that in 2009 they intend to adopt defensive strategies to weather the storm."
The survey of 40 SFOs in 10 countries reveals a shift towards traditional assets and away from alternatives. The average portfolio was split 55/45 between traditional and alternative investments in 2008, reversing the previous year's stated intended ratio.
The vast majority (65%) changed their investment strategies as a direct result of market turmoil. Almost half (48%) said they were most concerned about asset protection due to the crisis. More than a third (35%) said the lack of viable investment options was their biggest concern.
Investors displayed a far more defensive attitude to investing in 2008. More than 60% of the offices surveyed described the family's investment objectives as "balanced" or to "preserve." A further 20% said the objective was to "preserve very conservatively," a sharp increase on the 4% who took this approach a year earlier.
The survey highlights that market turbulence has reinforced the view within SFOs that they should retain market independence. Primary strategies for 2009 and early 2010 will include recruiting and retaining high quality talent, refining investment management, improving governance, reassessing relationships with service providers and upgrading risk management procedures.
The survey, conducted between October and December 2008, highlights the shifting preferences of SFOs engaging financial service providers. Private banks topped the list of the most popular providers, followed by asset managers and investment banks.
While "investment track record" was the most important criteria for evaluating financial service providers a year earlier, it fell to fifth place in the latest survey. "Confidentiality" was given prime importance this time.
"No longer is the performance mantra the overriding issue for offices which have experienced a weighty fall in global equity markets, the collapse of household banking names and the drying up of credit, lending and financing," said Campden Research CEO John Pettifor. "Transparency and scrutiny have become the new watchwords."
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