Global family offices taking advantage of a weak sterling by loading up on poorly performing London real estate are likely to become more wary of investing in the UK as Brexit draws closer, advisers say.
Meanwhile, UK-based family offices are asking a lot of questions ahead of the 29 March, 2019 deadline, but most were yet to take action.
“London is still a magnet,” Philip Watson, Citi Private Bank’s global head of investment lab for EMEA, said this week.
“But when the currency fell it was interesting because I’d pick up the phone in the morning to Asia and clients were seeing it as an attractive buying opportunity… Brexit was digested very differently depending on whether you were East or West.”
Watson said this interest would likely wane as the deadline approached and people became “very, very careful about putting more money to work in UK real estate”.
Jeremy Knowland, UK market manager at Citi, said overall, Brexit was having a minimal impact on the average family office, given their sophistication and global outlook, although he expected this would change over the next year.
“We are getting questions around, if we do get a hard Brexit is this the right jurisdiction for myself and my family to stay in?” Knowland said.
Family offices were expected to up the due diligence on their charitable donations in the wake of the Oxfam scandal.
“Some clients are so sophisticated they already have professionals within their family office that look at how the [donated] money is used and actually do an audit on the organisation,” Knowland said.
“The Oxfam scandal is going to increase the need for awareness… They will continue to donate to charity, but perhaps be more careful.”
Moving into 2018, Citi Private Bank is overweight in healthcare, energy, China, emerging markets, and Europe ex-UK.
“What was interesting was how resilient [emerging markets] were recently actually in the downturn,” Watson said.
Given volatility has returned to the market this year, and yields have risen, investors have the opportunity to put “floors” into their portfolio—“meaning maximum amounts of capital that you can lose whilst investing into a strategy that you favour”, Watson said.
“That is becoming more interesting to our clients—structured investments in some capacity.”
Strong performance from global equities was expected to continue throughout 2018. Campden Research’s Global Family Office Report 2017 (GFOR), which surveyed 262 family offices with an average $921 million assets under management, revealed the average portfolio comprised 27% global equities at the start of 2017.
A total of 44% of respondents said they planned to buy more developing market equities during the year, and 21% said they would allocate more to developed market equities.