Family Offices are currently facing a baffling conundrum

October 26, 2016

Low interest rates, high volatility on the stock markets… The current economical context sets new challenges to family offices (FO). Emile Salawi, our Head of Family Offices & Institutional Coverage, tells us how these savvy investors adapt to the situation.

What are the most salient aspects of FO investment strategies?

FO usually invest in asset classes they understand and with people they trust or have done business with in the past. Direct investments are a core element of their investment strategies, real estate being one of them.

In terms of risk profile, we have noticed a difference between FO who have realized their family business and those who still operate a family business. Everything being equal, the former tend to be less conservative in their approach.

How does the current context of negative interest rates in Europe and Switzerland affect FO?

FO, especially those who are mainly cash rich, are currently facing a baffling conundrum. Because of the negative interests rates, some are exposed to capital losses. As expected returns are reviewed downwards, cost efficiency is becoming more Paramount.

How do they adjust their investment portfolios?

Similarly to asset managers, most FO have investment committees on a weekly basis to review their portfolio performances. Strategic asset allocations and target returns are usually defined on a yearly basis but can be reviewed on an ad hoc basis if required (e.g. if the macro economic scenario differs significantly during the year compared to initial assumptions).

To mitigate the impact of the negative or zero interest rate policy, FO tend to seek longer-term and less liquid investments (up to 8-12 yrs) such as real estate, private equity or direct investments. Few allocate funds to successful hedge funds managers in order to keep liquidity.

You want to know more about FOs’ investment strategies? Ask your question to our expert!