Our answer on this question: The primary goal of family offices is the preservation of wealth and the maintenance of steady payouts to the family members. This also determined their investment style for a long time: quite safe asset classes with low risk and low (but steady) payouts were prioritized: real estate, blue chip stocks, bonds. But, in the current low interest environment, also alternative investments like private equity or venture capital arise. Often, the investment focus is also based on the roots of the family: someone who sold his startup is likely to invest in startups, heirs of a real estate dynasty will likely also invest in real estate in the future.
Regarding possible family office investment types, the UBS Global Family Office report is an interesting read. They outline the following asset classes (and the shares of European FOs which invest in this asset class):
1) Real Estate, 23%
Can be different types: office, residential, logistics, light-industrial, hotels, retail, retirement homes and so on. Family offices with a background in real estate are also often developing projects on their own. Interesting point: in Europe, 23% of the FOs are investing in Real Estate, while in North America it’s only 13%.
2) Private Equity, 7% (Funds), 14% (Direct)
Private Equity investments are either done by direct inhouse PE investment teams or by PE funds. The focus can range from investments in traditional mid-sized industrial companies to growth financing for “grown-ups” (former startups). PE investments usually mean higher risk but also the chance of higher returns.
3) Fixed Income, 13% (Developed Markets), 2,5% (Developing Markets)
Fixed Income investments range from US Treasuries, sovereign bonds to corporate bonds. Usually, they are safe but (especially today) bring low return.
4) Equity, 21% (Developed Markets), 3,9% (Developing Markets)
5) Cash, 6,8%
6) Gold, 1,1%
7) Other commodities, 0,4%
8) Agriculture, 1,4%
9) REITs, 0,4%
10) Hedgefunds, 5%
Picture source: Sharon McCutcheon
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