Surveys

Family Offices Fret Over Rising Inflation - Citi Private Bank

Tom Burroughes, Group Editor, London, 24 September 2021

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In its sixth annual report of family offices, the US private bank delved into what these entities are concerned about. Perhaps, unsurprisingly, rising inflation is making them concerned.

A survey of family offices by Citi Private Bank finds that these organisations are concerned about rising inflation amidst heavy central bank money printing and some of the disruptions caused by the pandemic. 

The US bank carried out its poll during its annual family office leadership programme held virtually in June. The total number of survey respondents increased this year to 197 (versus 177 in 2020). Of those, 79 per cent were family offices, rising 24 per cent year-over-year.

Increased inflation rates are giving investors and business owners the jitters. In the US, the annual inflation rate was 5.3 per cent for the 12 months ending August 2021, following two straight 5.4 per cent increases. 

The Citi report said that four predominant themes emerged: concern over rising inflation, the prominence of high cash levels in the face of a low yield environment, continued growth in portfolio allocation to direct investing opportunities, and a marked comeback in portfolio values year-over-year despite a prevalent degree of macroeconomic uncertainty.

While over three-fourths of all respondents seek returns of 5 per cent or more over the next 12 months, the outlook is more optimistic for family offices with assets under management of over $500 million with 30 per cent seeking over 10 per cent returns versus 19 per cent of family offices with AuM under $500 million. 

The survey also logged rising interest in direct investing in private enterprise. For almost half of the participants, this level of exposure represents 25 per cent or more of their overall allocation.

“In these unusual times, our exclusive survey offers an invaluable glimpse of the thinking of family offices and other leading investors,” Ida Liu, global head of private banking, said. “It’s reassuring to note that investor sentiment isn’t negative. Instead, family offices have weathered the COVID crisis well and are uniquely positioned to deploy further capital as they see opportunities arise. We stand ready to offer them our fullest support in the emerging post-pandemic landscape.”

“Among our many intriguing findings, it’s the rise of direct investing in private enterprise that reflects deep confidence in the flexibility and strength of the global economy,” James Holder, global head of Citi private capital group, Citi Private Bank, said. “It also underlines the vital role family offices and private capital play in supporting innovation, entrepreneurship, development of the stakeholder economy, creating jobs and new solutions to the challenges of our day.”

Also of note, the 2021 Family Office Survey found that two-thirds of respondents responded as “overweight” or “neutral” when it came to commodities in their portfolios, and there was also a continued shift in interest in emerging market equities.

The study said that family offices own significant amounts of cash, and queried whether this was wise.

"Based on the responses, it is clear that family offices continue to hold significant cash, some perhaps hoping to time the markets, others seeking safety and liquidy. No matter what the reason, we see it as a potential detractor to overall portfolio performance given the low-yield environment. It would be prudent to revisit the main reasons for having such significant cash allocation," it said.  

Source: Citi Private Bank

On global developed market equities, the report noted: "While investors appear to have taken a slightly more cautious view in 2021, driven by concerns of high valuation and record territory for indexes  especially in the US, there certainly appears to be continued expectation of higher returns in this asset class with investors seeking out key sectors like healthcare, which still trades at a discount and can be defensive. We agree that the S&P 500 absolute valuations as measured by P/E ratios are not cheap on a historical basis, but when compared to the alternatives across other traditional asset classes (e.g.  high-quality US bonds), valuations are still trading at average levels."

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