This time last year, like everyone else, the wealthiest Americans were staring at a financial cliff. The pandemic was becoming real, and really uncertain.
Then came working from home, extreme reliance on technology and more…and the top 500 wealthiest individuals collectively watched their net worth increase by $813 billion (according to the Bloomberg Billionaires Index).
For family offices, globally, while growth may not have afforded them new islands in the South Pacific, they likely did okay. UBS’s Global Family Office Report 2020 found that 55% of family offices responded to the crisis by rebalancing their portfolios in March, April, and May to maintain their long-term strategic asset allocation. Wise! And assuming most of them stayed in the market, they likely road the S&P 500 wave that gained 16.26% for the year.
So what are most family offices looking to do in 2021?
According to a Citi Bank report, three out of four family principals and office heads indicated a “mostly cautious investment outlook” for 2021. Participants state they expect 1-5% returns. Operationally, here are a few other things they’re expecting to consider—
1. Staying out of any office spaces. Working from home is still a thing, but probably not a permanent thing like some tech firms have indicated. For cybersecurity reasons—home offices and kitchen tables aren’t necessarily secure—family offices are likely to call staff back to the office and out of Zoomville later this year or in 2022.
2. Beefing up cybersecurity. Financial information is always at risk but the latest hacks at the highest levels (that we know of) make it clearer than ever: No data are safe. It may be time to spend money on a few more cyber barriers. Read this.
3. Upgrading technology. Working from home full time will likely end at some point, but remote access won’t. It’ll always be a need indefinitely, so cloud technology is at the top of the list of things to check.
4. Impact investing. High-net-worth families are increasingly aware of how their investments impact society and Mother Earth. UBS found that 1 in 3 family offices are engaged in sustainable investing. And of those engaged in sustainable and impact investing, it’s predicted that 1/3 and 1/4 of the average portfolios will consist of sustainable and impact investments, respectively, by 2024. Look for this to continue in 2021 as younger members of these families have more influence; Millenials care less about yachts and more about the water keeping them afloat.
5. Heightened Risk Awareness. Peter Sasaki, a managing member at the SDS family office (sdsfo.com), said the following about many family offices during COVID-19 (which may continue through 2021):
“Many family offices have long been hedging their investment portfolios against increased volatility…some family offices are increasing their use of safe-haven investments such as precious metals and occasionally cryptocurrencies. At the same time, a large number of family offices are benefitting from the market volatility in their hedge fund portfolios and some are using the market downturns to—in their view—pick up solid investments at temporarily depressed prices.”
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Sources: empaxis.com, deloitte.com, privatebank.citibank.com, linkedin.com, reuters.com
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