Real estate performance for family offices declined by more than 7 percent last year, with political and economic uncertainty as well as peaking property markets to blame, said a report from Swiss bank UBS and Campden Wealth Research.
“Real estate, which typically accounts for a considerable share of the average family office portfolio, somewhat disappointed with a weaker average performance of 1.4 percent [in 2016], compared with 8.7 percent in 2015,” the Global Family Office Report 2017 said. “This is likely to be a consequence of political and economic uncertainty across the regions, and some developed-markets beginning to peak,” the report added.
In a reverse of fortunes, the composite global portfolio of family offices returned 7 percent in 2016 after returning a meagre 0.3 percent in 2015. In other alternative asset classes, private equity returned 12.9 percent in 2016 and agriculture returned 7.6 percent.
North American family offices performed the best globally, averaging a 7.7 percent annual investment return. The report said this gain is largely due to their relatively lower allocations to real estate in favor of equities and private equity. Allocations of family offices in emerging markets (23.7 percent) and Asia-Pacific (20.3 percent) significantly exceed those of Europe (17.7 percent) and nearly double those of North America (10.2 percent).
Despite real estate’s performance dip, it was still the third-largest asset class, behind private equity and public equities, in the average family office portfolio, with direct real estate comprising, on average, 15.8 percent of a portfolio this year.
Family offices also remain optimistic about the future of real estate. The majority of those who took part in this year’s research are planning to either maintain (45 percent) or increase (40 percent) their investment in the asset class going forward.
“Family offices have been making the most of their ability to embrace risk and invest for the long term, increasingly accepting illiquidity, much like other sophisticated investors,” Sara Ferrari, UBS’s head of family offices, said in a statement.
By real estate strategy, family offices invested about 57 percent of their capital in commercial strategies this year, down 4 percent from 2016, while 43 percent was in residential holdings.
For the report, UBS and Campden surveyed 262 family offices with average assets under management of $921 million.