2020 UBS Global Family Office Report - AEF

2020 UBS Global Family Office Report

For UBS Marketing Purposes

21 August, 2020

Jason Hobday, UBS Family Advisory

1

How can I make sure everything that matters to my loved ones and I lasts for generations?

How do I prepare the next generation to take over my family enterprise?

How can we evolve from a Family Business into a Business Family?

How will we maintain control over our assets in the future?

Who will manage my wealth and business when I am not around?

Is a Family Office relevant for our family?

2020 UBS Global Family Office Report

Section 1

3

Executive Summary

Family offices’ institutional nature, expert insights and superior access are serving them well. Our survey of 121 of the world’s largest family offices shows that these qualities allowed them to ride out 2020’s storm in financial markets. In an historically turbulent time, portfolios performed in line with or above their objectives.

1 2

Asset allocation

More than half (56%) of families remain closely involved

in strategic asset allocation, making it a priority for the

family office and a cornerstone of wealth preservation.

Succession planning

While the current generation of beneficial owners are mainly in their 60s and 70s, around a third of family offices have no plans for a change in control.

3

Sustainable investing

While 39% of family offices intend to allocate most of their portfolios sustainably in five year’s time, they’re mainly targeting the easier option of exclusion-based strategies.

4

Executive Summary (2/2)

Responding to the crisis

Over half (55%) of family offices rebalanced their portfolios in March, April and May to maintain their long-term strategic asset allocation.

But they were also highly opportunistic, with two thirds trading up to 15% of portfolios tactically.

4 5

Private equity

More than two thirds (69%) of family offices view private equity as a key driver of returns.

5

Average wealth

Source: The UBS Family Office Report 2020 and UBS Evidence Lab.

Our report focuses on 121 of the world’s largest single family offices, covering a total net worth of USD 142.4bn, with the individual families’ net worth averaging USD 1.6bn (not all families disclosed their wealth).

Average wealth of the family office, in %

21% preferred

not to say

–

87 of the 121

family offices

disclosed their

net wealth

USD 751m – 1bn

USD 1.51 – 3 bn

USD 1.01 – 1.5 bn

USD 501 – 750 m

USD 50 – 99 m USD 251 – 500 m

USD 100 – 250 m

USD 3.01 – 5 bn or more

50 million 5+ billion

Total Wealth

in GFO survey

USD 142.4 bn

Average

total worth

USD 1.6 bn

21 24

19 12

9

6

8

3

6

Generations and founding year


Generations supported by the family office

Almost all (95%) of the family offices support just one or two generations. However, almost half (48%) of those family offices supporting one generation no longer include the founder or business owner. Almost a quarter (24%) of the single-generation offices support the second generation, with the balance supporting the third, fourth and fifth.

Founding year of the family office

More than two thirds (69%) of the family offices were founded in the past 20 years. A little over a quarter (26%) were founded from 1950-2000, and the remaining 5% before then.

Three generations

Two generations

One generation

5

48

46

First generation Second generation Third – fourth generation Fifth generation onwards 52

24

13

11

2010 or later 38

2000s 31

1990s 14

1980s 7

1970s 3

1960s 2

1950s or

before 5

69

7

Allocations by asset class


The highest strategic asset allocation weighting ahead of the crisis was in equities.

Leveraging family offices' institutional nature, superior insights and access, portfolios were broadly diversified, with 35% allocated to alternative investments.

Fixed income exposure was low in a world where interest rates were already close to zero or negative in some countries.

Cash allocations were on the high side, at 13%, signaling the caution of some family offices.

Strategic asset allocation proves its worth

The institutional-style strategic asset allocation that family offices had in place at

the end of 2019 has yielded significant long-term performance.

8

Rebalancing and tactical changes in the crisis


• Half (55%) of family offices rebalanced their portfolios in March, April and May to maintain their

long-term allocation.

Rebalancing portfolios to maintain

strategic asset allocation, in %

Family offices re-

balanced allocation

Family offices did not

re-balance allocation

55

45

100

Re-balancing of asset

allocation in light of

market changes in

the last 2-3 months.

Rebalancing portfolios to maintain SAA

Tactical asset allocation changes

in the crisis, in %

%

1– 4 %

5 – 9 %

10 –15

16 – 24 %

25 – 34 %

35 % or more

18

18

29

13

4

18

100

Tactical asset allocation changes in the crisis

65

• Family offices executed major trades in the period; two thirds (65%) of them switched up to 15% of their portfolios

9

Two tactical trading patterns emerge

Numbers in %. Source: The UBS Family Office Report 2020 and UBS Evidence Lab.

Split between opportunistic and risk-averse

Family offices split into two camps – the opportunistic investors exploiting market dislocations to buy oversold assets, and the risk-averse investors reducing their pro-growth exposure by adding to cash and gold.

Changes to asset classes between March and May 2020

Percentage of family offices who made changes to specific asset classes between March and May, 2020

Cash

Equities – Developed markets

Real estate

Private Equity – funds

Gold / precious metals

Bonds (or fixed income) –

developed markets

Private Equity – direct investment

Bonds (or fixed income) –

developing markets

- 19 + 44

- 5 + 25

- 20 + 37

- 16 + 29

- 2 + 14

- 0 + 10

- 0 + 7

- 7 + 13

- 0 + 3

- 3 + 3

- 20 + 18

- 3 + 0

+ 6 - 24

Left:

Significantly / moderately

decreased, in %

Right:

Significantly / moderately

increased, in %

25

21

18

12

12

10

7

Hedge funds 7

Infrastructure 3

0 Commodities

-2 Equities – developing markets

- 3 Arts and antiques

- 18

10

Who drives the strategic asset allocation?


Roles in Strategic Asset Allocation

• Families view strategic asset allocation as the cornerstone of wealth preservation and accumulation.

• For more than a quarter (28%) of families, the owner presides over strategic asset allocation.

• But an equal percentage splits responsibility equally between owner and family office. In total, therefore, the beneficial owner is still involved in more than half (56%) of the families.

• Almost a quarter (24%) of them entrust their family offices, while 7% look to their bank partners.

Roles in strategic asset allocation (SAA), in %

100

28

28

24

13

7

Beneficial owner is the main

driver of SAA

SAA evenly shared by beneficial owner

and family office

Beneficial owner highly reliant on

family office for SAA

Another mixed approach for SAA

Beneficial owner and family office

highly rely on the bank partners for SAA

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Level of engagement in the family office across generations


• Topic of succession is the elephant in the room – even though our survey’s family offices already support two generations.

• In their 60s and 70s, the current owners are keeping options open when it comes to handing over responsibility.

• Every third family office does not know when there will be a change of control.

• Only just over half of families are very engaged, regardless of generation.

1 st generation –

the owner

2 nd generation

33 33

16 14

51 52

Level of engagement across generations, in %

Extremely / very engaged

Somewhat engaged

Slightly / not at all engaged

100

Source: UBS Evidence Lab

*Percentages may not

total 100 due to rounding

12

Activities in the Family Office over time and generation

n = 79 1st generation, n = 45 2nd generation, n = 23 3rd generation. Source: The UBS Family Office Report 2020 and UBS Evidence Lab.

• Strategic asset allocation and real estate buying/management are the most important activities for both G1 and G2.

• The first generation is more likely to sit on the board of the family office than subsequent generations, who are more likely to take management roles.

• Younger generations that have only known mature operating businesses devote more time to activities outside the main business, such as philanthropy and impact investing.

Activities in the Family Office over time and generations, in %

51

49

43

41

41

40

30

28

26

22

1st

generation –

the owner

2 nd

generation

3 rd

generation

Strategic asset

allocation

Strategic asset

allocation

Real estate

buying / management

Real estate

buying / management

Sit on the board of

the family office

Sit on the board of

the family office

Sit on the board of

the family office

Tactical asset allocation Tactical asset allocation

Tactical asset allocation

Philanthropy initiatives



Private equity – direct

investment deals


investment deals


investment deals

Management / Executive

role in the family office





Sustainable investment

(bonds, equities)

Art and antiques buying

Art and antiques buying Art and antiques buying Impact investment

deals / projects

Impact investment

deals / projects

Impact investment deals

/ projects

39

35 Strategic asset

allocation

35

31

27

27

27

27

15 Sustainable investment

(bonds, equities)

8

50

45 Real estate

buying / management

45

43

41

41

38

31

26 Sustainable investment

(bonds, equities)

17

The desire to preserve wealth spans generations

13

Focus on the next-in-line


Focus on the next-in-line, in %

1 The family office team is prepared to work

with the next generation of the family

2 There’s a clear difference in the type of

projects each generation is passionate about

3 Developing the family talent from the next

generation is a high priority for our office

4 The business owner is actively preparing his

successor to control the family office

5 The next generation shows a lot of interest in

the family office operations

6 The newer generations have actively promoted

sustainable investing in the family office

7 The next generation is influencing investment decisions

with the intention to have a positive impact on society

8 The younger generations are less interested

in traditional investments

9 Impact investment is being highly driven

by the younger generations

10 In the future, a large portion of the wealth will

be the allocated to philanthropy and will not be

managed by the next generation

10 2

4

5

6

7

8

9

87

1 3

69

67

55

53

48

46

46 19

44

Developing the talents of the next generation is a high priority for two thirds (67%) of all family offices

14

Taking the pulse on sustainable investing


5 6 7

62

43

42

39

32

66

28

"Performance evaluation is a big challenge in impact investment projects" which helps to explain why it remains a less important yardstick

"Sustainable investing is a top priority for the business owner’s family"

"Climate change has already made us change some of our instrument selection"

"We have prepared our office’s team to make sustainable investments" While family offices’ worthy ambitions are clear, they largely appear still to have a pure focus on “financial”

investment metrics

"Sustainable investments will be the majority of our portfolio in 5 years’ time"

"We have an active pipeline for direct impact investment opportunities"

"The family believes Impact investments are important for their legacy" Momentum appears to be strong, backed by a sense of “purpose”

Whether good intentions translate into reality will need to be monitored

15

Excluding rather than including


• Exclusion-based strategies form by far the highest proportion of family office portfolios, at 30%. The share is expected to edge up to 35% over five years. ESG integration is catching up, as families look to more than double their allocations to 19%, from 9% today.

• As the easiest strategy to implement, family offices have excluded investments that don’t meet their values for some time. But they’re now exploring how integrating environmental, social and governance (ESG) factors mitigates risk and improves investment performance.

• Some are also focusing on impact investing as the most effective way of zeroing in on a specific environmental or social theme and driving positive, measurable change.

Diversified across sustainable

investment strategies, in %

Exclusion-based

investments

Current

In 5 years

Impact investing

Current

In 5 years

ESG-integration

investments

Current

In 5 years 9

19

30 35

9

14

SI investment strategies, current and in 5 years

16

The move towards SI should not be overstated


• Most family offices still plan to opt for the easiest option of excluding assets not in line with their values.

• There’s also a steadfast small minority who would rather keep things as they are – maximizing investment returns through traditional investments, while pursuing philanthropy separately.

Barriers preventing sustainable investment, in %

I am happy with my current approach

I prefer to maximize my returns and get involved in

philanthropic initiatives instead

Hard to measure impact /

No long-term track record of performance

I’m worried about having lower returns

I don’t know enough about them /

haven’t seen any success cases

There aren’t investment opportunities on areas /

values I care about

I don’t believe in sustainable investing Small base size

n=22 without sustainable investments

57

38

24

19

19

10

10

Barriers preventing sustainable investing

17

Top performance indicators


• Family offices still prioritize financial return on investment (ROI) (or internal rate of return) when evaluating impact investments, with 43% placing it among their top three performance indicators.

• Notably, families in the US and Asia make it an even higher priority.

• A little more than a fifth of them (22%) place social return on investment in their top three performance indicators, while 12% flag the importance they attach to environmental impact.

Top performance indicators, in %

ROI / IRR

Social return

on investment

Environmental impact

Performance on

ESG indicators

Other

43

22

12

10

13

100

18

Sustainable investing engagement across generations


When it comes to impact investing, the next-in-line generation have a greater affinity for it than the older generation.

61% of the next-in-line generation are regarded as engaged, compared with 47% of their parents.

Business

owner

Business

owner

Business

owner

Next

generation

Next

generation

Next

generation

Exclusion-based investments ESG-integration investments Impact investing

Extremely / very engaged

Somewhat engaged

Slightly / not at all engaged

26 22 30

37

18 25 20

24

56 53 51

23 33

20

23

57 44

39

*Percentages may not total 100 due to rounding

100

61

47

The next-in-line generations are likely to increase the level of sustainable investment, although by no means all will do so

Setting up your Family Office

Section 1

20

Setting-up your family office A uniquely specialised service business

For illustrative purposes only. Please always read in conjunction with the risk information at the end of the document

A Family Office is a business entity set up to manage the wealth and affairs of a family

Core definition

Different typologies

Number of families serviced: one family or several families

Ownership: owned by the family or by external professionals

Physical form: virtual vs physical office, separate from family business or in the same location

Focus of services: administration, investment management, family management, business management

Legal form: limited company, private trust company

Generations: one vs. multiple generations, founder led vs external CEO

The management of a Family Office is based on a normal corporate business model requiring a clear strategy, governance, best team, infrastructure and efficient execution. However, the primary focus is to support its founding family which results in a uniquely specialized service business

Business model

21

• Why do I want a Family Office?

• What do I expect my Family Office to do for me?

• Which type of services should it perform (Investments? Administration? Risk Management? Philanthropy? Others?)

• Which type of assets will be managed by the Family Office?

• Who owns the assets now? Through which vehicles? How do I expect them to be managed in the future.

• How much of my time can I realistically dedicate to setting-up and running my family office?

• How will I select the people working for me?

• Where do I plan to setup the family office? Why that particular location?

• How much am I ready to pay for setting up AND running the Family Office? How do I fund the operations?

• Do I really need a physical family office or do I need services that help me organize and manage in structured and

professional way my personal wealth?

Key questions to start your family office project A physical family office is in essence a financial business rendering services to the Principal family It may be regulated and may have to adhere to a strict regulatory and licensing framework


22

Why consider having a family office A strategic family office can be a unique competitive advantage for a wealthy family. It can improve the chances that the family thrives over generations by moving beyond traditional Wealth Management


Supporting wealth regeneration

• Timely strategic investments and exits. Structuring and managing assets for control and value creation

• Helping to develop wealth creators, including entrepreneurs

Supporting family unity

• Family governance support

• Encouraging (with the Family Council) consistent governance practices across the family enterprise

• Organizing family engagement activities to sustain connection with the family enterprise and build family unity

Supporting building family talent • Organizing family education,

development, and mentoring (together with Family Council)

23

Family Office as a hub for your family Purpose: a central hub for your family and private wealth


Wealth Preservation

To provide support for intergenerational wealth management in a consolidated, controlled and professional way, employing estate planning and strategic asset allocation strategies

Next Gen Development / Family Business Support

Family offices are also in-charge of managing programs to groom the family's Next Gens and ensure a continual pipeline of family talent to support the family business. The family office also provides support to the existing family business and pursue new ventures to promote entrepreneurship values amongst family members

Philanthropic Giving / Family Legacy

For your family's philanthropy goals, your family office will be involved with and work together with your charitable trust or foundation to manage the philanthropic giving

Passion Asset Management and Lifestyle Services

If your family has passion assets such as an art collection, private aircraft or private yacht, your family office can support all aspects of their management

Family Meetings and Family Communication Management

Family offices also take the lead in organizing family meetings and communicate essential information across the family

Family Office

Wealth Preservation

Next Gen Development / New Venture

Support

Philanthropic Giving

Passion Asset Management

Family Communication Management

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What does a Family Office do?

Investments Legal & Tax Administration Family professional

Asset allocation

Active portfolio management

Private equity direct investments

Real estate direct investments

Financial research

Investments into commodities

Financial accounting

Reporting and consolidation of bank statements

Tax planning / tax filing / relationship management with tax service providers

In-house legal council

General secretarial services (office management and concierge services)

Archiving

Bill payment for family members

Maintenance of family homes (insurances, contractor management, etc.)

• Management of existing collections (art, gems, etc.)

• Security of physical premises

• FO HR (salary payments, employee management, etc.)

Support of philanthropic activities

Relationships management with trustees, bank non financial departments

Next generation mentoring and development (long term)

Relationship management with IT providers

Entrepreneurial projects

Typical family office functions


25

Example 1: single Family Office 'light'

UBS covers: investment & liability management ; infrastructure ; family needs

Principals + 1 staff

Dedicated research and investment specialists for

advice, management and

execution

Financing solutions Financial Reporting, incl. consolidation

of non UBS a/c

Support with their philanthropic

giving, support with next

generation leadership

development, arranged VIP

service coverage

Several legal firms for different types of legal

advice

Professional tax firm to coordinate all tax

matters

Property management company

Background

• Singapore based family with ca. USD 200-250m in "free bankable" assets and property portfolio

• Managed by 1st generation entrepreneur, wanting to engage 2nd generation

• Looking to "get organized" with a cost-efficient Family Office structure combining their own limited number of staff with FO-like services from a bank and other providers

• Management overview, analysis and advisory across entire investment portfolio

• Structured investment process & monitoring with right governance

• Access to more competitive credit lines

• Cost efficiency: packaged services as much as possible

• Support in creating a strategy and execution for their philanthropic activities

• Support in education of 2nd generation on financial and personality building matters

• Simple and hassle free setup. Want to control investments but not much time to take care of things

Virtual family office focused on core functions and outsourcing to UBS and other professional firms

Family Needs

Family Office Model


26

Example 2: single Family Office with own expertise

Background

• Hong Kong based business family with USD 500m of wealth to manage

• Currently in their 2nd and 3rd generation

• Family office setup to manage the assets of one branch while several branches are involved in the management of the philanthropic foundation setup two generations ago

• Patriarch's son has 10+ years in fund management prior to joining the family office

• Strong emphasis on investment governance with formal rules and guidelines

• Family office is primarily an investment office

• Formal committees support decision making and reporting accountability in the family

• Minimal internal activities and extensive outsourcing to 3rd parties of non-core activities

• Given the son's over 10 years experience in the financial industry, patriarch decided to involve his son:

• in the management of his branch's liquid assets

• in the management of the portfolios under the overall family's charitable foundation (with buy-in from the overall family, represented in the foundation board)

Family office focused on core functions, outsourced non-core functions and other professional firms

Family Office Organizational Structure

The Family

CEO Son of patriarch

Family office (4 Staff)

Investment Management 3 professionals (include CEO)

• Strategic and tactical asset allocation

• Management of the branch's liquid portfolios, real estate and private equity investments through a private investment fund.

• Management of assets dedicated to philanthropy

Family Management 1 assistant

• Secretarial work / agenda management for the family

• Coordination of tax returns

• Management of family's lifestyle needs

Outsourcing partners

Financial Firms for reporting, risk

management, investment advise and brokerage

Lawyers Accountants / Tax advisors


27

Example 3: Family Office as the manager of a family fund

Family Trust

Family controlled Business

Family Investment Fund

Family Office acts as Fund Manager

Principal

Beneficiaries

Family HoldCo

Investment Management Agreement

Trustee

Settlor

Business HoldCo

Characteristics

• Framework to plan for the long term / multi-generational

• Clear separation of family assets from operating businesses

• Formalized asset protection structure (Trust)

• Family fund to hold the investments – for proper investment governance

• Professionalized management of the assets


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Developing your family office

• Define stakeholders

• Vision and mission of family office

• Defining scope and functions of the family office

• SWOT analysis

• First draft of family office

Asset Structure (e.g.): • Discussion and decision on

required asset holding structure

FO Governance (e.g.): • Definition of organizational

governance • Set up of decision making

bodies (e.g. Investment advisory board)

FO Business Model (e.g.): • Definition of investment

infrastructure / financial reporting

• Decision on capacity building / outsourcing strategy

• Review and fine-tuning of the initial Family Office set-up

• Periodic reviews after 1-2 years in operations to assess alignment of platform with expectations of principals

Evolve

Review Sessions

Operate*

Ad-hoc meetings

Implement*

Workshop 2&3

Design*

Workshop 1

FO Business Model • Final assessment and

decision on external service providers

FO Structure • Involvement of external

service providers for execution on legal, corporate, IT, HR etc. matters

FO Decision Making • Support in formalization of

operating manual, incl. governance structure, processes etc.

UBS approach

• Preliminary meetings to get to know the current set-up, set priorities and project scope

Explore

Introduction

Note: * Fee based workshops charged at USD 15k per workshop; implementation work priced case by case For illustrative purposes only. Please always read in conjunction with the risk information at the end of the document.

29

Supporting you from advice to execution

• Family Governance consultancy services in the form of thematic workshops to develop your family constitution

• Family Office consultancy services to help you design the scope, location, partners and operational implementation of your family office

• Review and gap analysis of existing arrangements

We provide insights, comprehensive advice and execution services, and employ a structured approach to deliver solutions to ensure your family's wealth and legacy will live on today, tomorrow and for generations to come.

• Research on family businesses, family offices, next-generation issues, and other important legacy topics

• Publications, such as the UBS Family Office Compass, helping you create a family office that’s built to last

• Invitations to attend events and join exclusive communities, where you can connect, exchange and share ideas on family wealth matters with like-minded people.

• Project coordination to implement your family governance and family constitution

• Supporting you in running your family meetings

• Setting up decision-making committees, such as a family council and investment advisory board

• Moderating educational sessions at your annual family retreat

• Supporting you in the implementation or review of your family office

Advice

Insights Execution


30

Contacts

JASON HOBDAY UBS Family Advisory +41 44 237 62 64 [email protected]

I have spent my career either working for or advising wealthy families. As a young lawyer I was fortunate to work for an iconic South African business family, eventually leading their London based family office and taking a seat on the board of their family group.

Leveraging on this experience I now advise large family clients aspiring to enduring success and interested in either family governance or family office. I am the lead author of the recently published UBS Cambridge Family Office Compass, Built for Generations. I believe that family wealth, which is guided by values and purpose, can make an extraordinary contribution to our sustainable future.

I am a proud husband and father to three children. I love to read, get in the water and make the most of life.

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Risk information

UBS AG or its affiliates ("UBS") does not provide legal or tax advice and this presentation does not constitute such advice. UBS strongly recommends to all persons considering the products or services described in this presentation to obtain appropriate independent legal, tax and other professional advice. This material has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient and is published solely for information purposes. The general explanations included in this presentation cannot address your personal investment objectives, your financial situation as well as your financial needs. Certain products and services are subject to legal restrictions and cannot be offered worldwide on an unrestricted basis. No representation or warranty, either express or implied is provided in relation to the accuracy, completeness or reliability of the information contained herein, nor is it intended to be a complete statement or summary of the developments referred to in this material. Although all pieces of information and opinions expressed in this presentation were obtained from sources believed to be reliable and in good faith, neither representation nor warranty, express or implied, is made as to its accuracy or completeness. This material does not constitute an offer to sell or a solicitation to offer to buy or sell any securities or investment instruments, to effect any transactions or to conclude any legal act of any kind whatsoever. Nothing herein shall limit or restrict the particular terms of any specific offering. No offer of any interest in any product will be made in any jurisdiction in which the offer, solicitation or sale is not permitted, or to any person to whom it is unlawful to make such offer, solicitation or sale. Not all products and services are available to citizens or residents of all countries. Any opinions expressed in this material are subject to change without notice and may differ or be contrary to opinions expressed by other business areas or divisions of UBS AG or its affiliates ("UBS") as a result of using different assumptions and criteria. UBS is under no obligation to update or keep current the information contained herein. This presentation is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties imposed under the United States Internal Revenue Code, or (ii) promoting, marketing, or recommending to another person any tax-related matter. Neither UBS AG nor any of its affiliates, directors, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this material. UBS specifically prohibits the redistribution or reproduction of this material in whole or in part without the prior written permission of UBS and UBS accepts no liability whatsoever for the actions of third parties in this respect.

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Documents

2020 UBS Global Family Office Report - AEF