Wealthy investors will increase their exposure to public and private equity in the coming months, judging that the possible risks highlighted by the Covid-19 pandemic are outweighed by the potential rewards, a Swiss private banking chief said.
Few are put off by the fact global stock markets have already recovered most of the losses suffered in the coronavirus-induced plunge of March, said Joe Stadler, head of the global family office unit at UBS, in an interview.
He was speaking to launch the bank’s annual report on global family offices, a widely followed review of the world’s wealthiest private investors, which shows that rich families weathered the financial storm well, with many taking the opportunity to buy stocks in the market plunge, even though others looked for safety in cash.
While the crisis showed a mix of bearish and bullish behaviour, family offices are positive about the future, the report said. A full 44 per cent of those surveyed planned to increase investments in developed market equities in the next two or three years, and 38 per cent to boost emerging market stock holdings. Some 20 per cent intended to increase exposure to property, 29 per cent to infrastructure, and 31 per cent to direct investment private equity funds. Just 7 per cent planned to raise cash levels and 15 per cent gold holdings.
Mr Stadler said the coming US presidential election in November posed little threat to markets. “My view is that there will be support for equities. Whatever the election outcome, both parties will want to spend money . . . to get the economy up.”
Moreover, with global tensions worsening between military superpowers, headed by the US and China, defence spending will rise, driving technological innovation in arms-related businesses, creating investment opportunities. “Transformational companies with a lot of defence tech in them will benefit,” said Mr Stadler.
He predicted interest rates to remain very low, making it unprofitable to keep money in cash and cheap to borrow funds for leveraged investments.
The UBS report, based on a survey of 121 family offices with an average family net worth of $1.6bn, found wealthy investors were very active in the crisis, with 35 per cent rebalancing their portfolios by 15 per cent or more.
The report said that 44 per cent of those polled increased their cash balances during the market upheaval between March and May, while 19 per cent reduced them, meaning that a net 25 per cent boosted cash. For gold the net figure was 21 per cent.
A net 18 per cent said they raised their exposure to developed country equities, a net 12 per cent raised developed country bond holdings and a net 10 per cent lifted property investments. But emerging markets suffered sharp withdrawals with net decline figures for both bonds and equities.
Looking at the rest of 2020, Mr Stadler said: “There’s still a significant move into equities. There is a significant interest in real estate. There is a significant interest in private equity.”
Investors, who had moved heavily into public equities at the height of the turmoil, had later turned to private equity markets and were now increasing their exposure to private markets by taking out loans to make further investments. “There will be a lot of demand for credit.”
Another piece of research published by UBS this week found a very different sentiment among investors in the UK with much smaller asset bases of between $250,000 and $1m. Three-quarters of those questioned in the bank’s Investor Pulse survey conducted in May 2020 anticipated permanent lifestyle shifts after the Covid-19 crisis. Over a fifth said the pandemic had significantly impacted their finances, while millennial investors were most fearful of job losses and insufficient savings.
Mr Stadler said family offices of billionaires, by contrast, could withstand market shocks to a far greater extent and were not subject to the same constraints. “As the Covid crisis has demonstrated, they can respond quickly and unhindered by emotion, rebalancing portfolios and buying more on the dips like professional investors.”
Meanwhile, a separate industry report showed that the rich are unhappy about their wealth managers’ fees. According to Capgemini’s World Wealth Report 2020, around a third of those with more than $1m in investable assets disliked the fees they were charged last year.
The poll of more than 2,500 investors found that about one in five plans to change their primary wealth management company in the next year. As well as fees, they complained about a lack of personalised information. In a warning to traditional wealth managers, 74 per cent of those polled said they would consider services from new automated advisers, notably big tech companies such as Google and Alibaba. The figure jumped to 94 per cent among those who said they may switch primary adviser in the next 12 months.
Capgemini said: “As Big Techs gain financial services ground, wealth management firms have little choice but to enhance digital customer engagement — quickly.”