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Last year was not a stellar one for family offices. That is not a huge surprise, given falls in stock markets. They still made money, of course: an average return of 5.4 per cent, according to a global family office report by UBS and Campden Wealth, down from 15.5 per cent in 2017.
But we are still talking about billionaires here — the average family wealth of those surveyed in the report was $1.2bn — so a less-than-stellar year for them still means getting richer by an average of nearly $65m.
What is more surprising — and disheartening — is that the proportion of family offices engaging in sustainable investment went down year on year. The previous year’s UBS/Campden report showed just 38 per cent of family offices had any sustainable investments in 2017; by 2018, that had fallen to 34 per cent. That suggests two-thirds of billionaires are not bothering to invest sustainably at all despite widespread global concern over not just climate change but governance and social issues too.
of family offices believe there will be a recession by 2020
What can we learn from this? It could be that sustainable investment is still seen as some sort of fad. In the 2017 report, half of the family offices surveyed said they intended to ramp up their sustainable investment over the following year. It looks like that didn’t happen. A wobbly investment environment in 2018 — with stock markets across the globe negative for the year — may have been a factor. Yet that may have been a mistake. A report last year from investment manager BlackRock found ESG (environmental, social and governance) indices matched or exceeded standard stock market indices in developed and emerging markets, with comparable volatility. It also found there was evidence ESG strategies could cushion any downside.
The wealth management industry is to blame for a lot of this. Too often, one hears advisers say ESG is all well and good but needs to form part of a “balanced portfolio”. Yet when the world is moving towards being more sustainable and all companies are increasingly prioritising ESG themes, it is becoming somewhat meaningless to say you need companies that aren’t interested in this “for balance”.
Meanwhile, fund managers have recognised ESG is on trend, but accusations of greenwashing abound. The reality is that until they can build up the expertise, they are shooting themselves in the foot by saying all investors should invest sustainably. Where does that leave all their high-fee, market-underperforming equity growth funds?
All this comes at a time when solutions to climate change are in need of funding. Innovation is taking place, from meat alternatives to the use of artificial intelligence in efficient farming and food waste. Maybe billionaires feel it is not their duty to get involved — and, of course, they are free to do as they like with their money, tax laws aside.
But if anyone can afford to take a punt on new technology, these people can. That so many invest in private equity shows their appetite for risk is strong. Perhaps they could channel that towards something worthwhile, while almost certainly staying billionaires. We would all be winners.
What family office employees say
- “The next generation has a longer investment horizon and a bit more risk appetite”
- “Right now, we just do not have a lot of trust in things apart from bonds and the private industry that we have control over”
- “We invest globally for diversification and attractive yields”
- “Our allocations to hedge funds have been getting lower and lower because the fees haven’t made sense when you’re looking at performance”
Alice Ross is editor of FT Wealth magazine and Financial Times Wealth correspondent
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