Asia-Pacific’s ultra-rich seek balance between bonds and equities

SINGAPORE – Asia-Pacific family offices have begun a strategic shift to a portfolio more balanced between fixed income and equities as they diversify and seek better returns.

Over the next five years, they plan to allocate more assets to Asia-Pacific markets and add bonds and equities from developed markets, private equity funds, and hedge funds.

According to UBS’ Global Family Office Report 2024 released on May 22, fixed-income allocations in 2023 were at a record high globally on expectations that interest rates will finally come down in 2024.

With cash rates likely to fall, most aim to fund the increased bond allocations mainly with cash, and cash flows from their operating businesses.

Investment and wealth

Family offices in the Asia-Pacific allocated 25 percent of their portfolios to fixed income in 2023, from 15 percent in 2022. Most of the funds went to developed markets and high-grade bonds issued by governments or government-linked institutions.

These companies, which manage the investment and wealth of a single family, have also shown an increased appetite for alternative investments such as private equity, private debt, and hedge funds to diversify their portfolios and for better returns.

Those in Southeast Asia kept 64 percent of their portfolios in traditional assets and 36 percent in alternative asset classes in 2023.

The Swiss bank surveyed 320 of its clients between Jan 18 and March 22, 2024.

Participating families were from more than 30 economies, including Singapore and Hong Kong, with an average net worth of US$2.6 billion (S$3.5 billion) and covering US$608 billion of wealth.

The survey showed that almost half of the ultra-rich families in the region plan to put more money into North America and the Asia-Pacific, excluding Greater China, over the next five years.

Mr Koh Liang Heong, head of UBS global family institutional wealth for Asia-Pacific, told a media briefing that family offices see the region as a long-term growth engine, and most are interested in investing in the consumption and technology-related spaces.

China and Japan are making a comeback, with various stimulus policies lending confidence to investors, Mr Koh added.

He said that family offices allocated less than 1 percent of their portfolios to cryptocurrencies and this is more for learning purposes rather than holding them as a serious asset class.

Philanthropy and charity

Philanthropy and charity are popular with the super-rich in the region, with 45 percent of family offices taking these sustainability issues into consideration. Healthcare is the top theme for about 60 percent of family offices in the region.

Other top sustainability themes include clean tech, green tech, and climate technology.

Allocations to real estate were the lowest on average at 6 percent, compared with 10 percent globally.

Globally, balanced portfolios appear to be back in favor as fund managers adjust for moderating inflation and declining policy rates, said Mr Benjamin Cavalli, head of global wealth management strategic clients at UBS.

Allocations to developed-market bonds have increased by the largest amount seen in five years, resulting in a greater balance between bonds and equities.

On average, family offices globally allocated 16 percent to developed-market bonds in 2023, up from 12 percent in 2022. They plan to keep this level in 2024.

Allocations to developed-market equities are expected to rise to 26 percent in 2024, from an average of 24 percent in 2023.

Developed and emerging markets

In contrast, allocations to equities in emerging markets will continue to slide to 3 percent in 2024, from 4 percent in 2023.

Real estate allocations may improve in 2024 to 12 percent, after falling to 10 percent in 2023 when valuations took a beating.

Family offices intend to cut their average cash holding to about 9 percent in 2024, from 10 percent in 2023.

Globally, more than a third of family offices surveyed are looking to increase their allocations to North America and the Asia-Pacific, excluding Greater China. On average, family offices now have 50 percent of their allocations in North America, 27 percent in Western Europe, and 17 percent in either the Asia-Pacific or Greater China.

While economies appear to be stabilizing, geopolitics remained a top concern among family offices worldwide, while climate change emerged as a top risk in the medium term.

The survey also showed that while generational transfer of wealth is the main priority of family offices, many family offices do not have the necessary governance and risk controls in place.