Family offices have been posting increasingly fantastic returns over the last couple years. In fact, according to a new report, family offices returned an average of 15.5% last year, which was up from 7% in 2016 and 0.3% in 2015. Family offices in Asia returned even more, averaging 16.4% in 2017 as dealmaking, real estate and markets roared.
The data is according to a survey put together by UBS and Campden Research, who has conducted the survey annually for the last 5 years. The survey is meant to shine a light on sometimes opaque family offices, which don’t always have the same regulatory reporting standards of many SEC registered hedge funds and corporations.
The prominence of family offices over the last few decades has picked up notably. For instance, billionaires like Microsoft’s Paul Allen and Google’s Sergey Brin both started their own family offices: Vulcan Capital and Bayshore Global Management, respectively. Brin’s firm reportedly has hired former bankers for financial matters – and former Navy SEALS for security. Another family office example is Google’s former CEO Eric Schmidt, who set up Hillspire. Schmidt’s firm is reported to have a 20% stake in hedge fund D.E. Shaw & Co.
Just these offices alone combine to over more than $100 billion in assets.
And the rise in Asian wealth has helped fuel the start of overseas family offices over the last decade. UBS estimates that a new billionaire is created in China every two days and Asia is now home to a quarter of the people on Bloomberg‘s ranking of the world’s 500 richest people.
The UBS survey polled 311 family offices, 37% which originated after 2010. The average amount of assets held by each office was $808 million, and the average worth of the families polled was $1.1 billion. Just over 20% say they have two office sites, but some have up to five locations.
Sara Ferrari, UBS’s head of global family office, told Bloomberg: “This is still a very early trend, and it needs to be monitored. U.S. family offices with more than one branch tend to have the second one in the country, and it’s mostly the same with Europe. But family offices in the emerging markets and Asia tend to diversify more regionally.”
Worldwide, there are estimated to be over 5,000 family offices, according to Campden Research. 75% of those who participated in the latest survey are managing wealth on behalf of just a single family. Family offices also don’t have any problem taking on more illiquid assets in order to boost returns. According to the survey, these offices may take a more hands-on approach to private investments, reflective of a global trend toward this type of riskier dealmaking. For instance, we just reported on the rise of another type of high risk dealmaking taking place in leveraged loans.
Direct private equity made up about 14% of family office portfolios, reported to be twice the level of fund allocations.
According to UBS, if you have over $150 million, you are a “ideal candidate” to set up a family office. At the end of 2017, UBS itself managed the equivalent of $125 billion through its family office program.
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