Top Banner

Cash, Real Assets and Private Deals: How Family Offices Are Preparing for 2020

Nov 7. 2019 “The world has gone mad and the system is broken,” said billionaire hedge fund manager Ray Dalio in an article he posted on LinkedIn this week. Dalio’s sense of trepidation about the global economic climate seems to be shared by family offices and wealthy investors across the globe, who are responding by repositioning their assets.

The 2019 UBS Global Family Office Report, released Monday, clearly detailed the landscape. More than half (55%) of family offices expect a recession next year, 42% are enhancing allocations to cash and 45% are reducing their exposure to risk assets.

Besides cash, families and institutional investors also seem keen on investing in private deals, both equity and debt. The number of buyout and private credit funds has quintupled over the past 20 years, data from research firm Burgiss suggests. The size of these funds, meanwhile, has expanded even faster – up 15-fold over the same period.

In recent years, exotic instruments like asset-backed loans and leveraged loans have gained momentum with investors seeking higher yields than the traditional bond market. The combined value of all leveraged loans in the U.S. reached an all-time high of $1 trillion in 2018, according to the S&P/LSTA Leveraged Loan Index.

However, not all traditional investments are falling out of favor. Tangible properties and infrastructure investments, for example, are just as popular with investors.

“Values for real assets, or tangible things, are going to be worth much, much more,” Bruce Flatt, CEO of Brookfield Asset Management, told CNBC in an interview last month. The Toronto-based alternative investment company, which is focused on renewable energy assets, real estate and infrastructure projects across the world, has seen its assets under management and stock price climb by 22% and 35% respectively over the past year.

Right Banner 2Right Banner 1