Credit Suisse launches single family office index for 'first of a kind' peer comparison

Credit Suisse has launched its inaugural Single Family Office Index which it says is "the first of its kind" and "aims to be a gauge for SFOs to reflect and compare investment performances across peers".

The inaugural Credit Suisse SFO Index tracks the financial asset performance of more than 300 SFOs across the regions of Asia, Europe and the Middle East.

The bank also releases its 2022 Single Family Office (SFO) Survey Report, offering insights on the key issues facing family offices and factors that drive their investment decisions.

The 2022 SFO Survey revealed that besides navigating the unprecedented market volatility and economic uncertainty triggered by the ongoing global pandemic, family office investment decisions are also impacted by the ripple effects of the war in Ukraine, resurging inflation and rising interest rates.

The survey findings also showed that the right investment strategy and achieving annual target returns are SFOs' top two challenges. Despite the swelling numbers of new SFOs in recent years, boosted by the significant rise in global wealth, there hardly is reliable SFO benchmark to globally reflect and compare investment performances across peers.

Nannette Hechler-Fayd'herbe, Credit Suisse's chief investment officer for EMEA and Head of Global Economics & Research, said: "Two of the most common questions from SFOs are what and how are other SFOs doing. We believe the Credit Suisse SFO Index will help SFOs around the world to gain insight into their peers' asset allocations and performances by geography and size." 

The Credit Suisse Index builds on a database consolidating more than 325 custodians and a large number of active-end clients with more than 300 SFOs tiered in three different size groups: small (less than USD 100 million of assets under management), medium (between USD 100 million and USD 500 million of AUM) and large (over USD 500 million of AUM), spread across Asia Pacific, Europe and the Middle East. In the future, it is intended to cover the remaining geographies and create a global SFO benchmark index. 

The Credit Suisse SFO Index will complement the Credit Suisse Family Business Index, which provides key performance indicators of family businesses, along with other entrepreneur-oriented research and services. 

Key highlights of the Credit Suisse SFO Index:

•    Since 2020, large SFOs have outperformed small and medium SFOs with a cumulative asset growth of 15.8% as of 29 July 2022, whereas medium-sized SFOs have grown their assets in custody by 8.4% on a cumulative basis. Small SFOs have returned to their pre-pandemic levels on a cumulative performance basis earning cumulative 1.7% over the same 31-month period ending 29 July 2022.

•    Year-to-date as of 29 July 2022, SFOs have on average lost 7.6% of their beneficial owners' assets in custody at banks, with listed equities (-6.5%) as the key performance detractor and alternative investments including commodities (+0.7%) as the top performance contributor.

•    As of 29 July 2022, the average asset allocation on assets in banks' custody in our SFO Index is 47% in equities, 29% in bonds, 17% in alternative investments and the rest in multi-asset investment solutions.

•    Large SFOs overall hold significantly more listed equities (62%) than small SFOs (45%). Moreover, large SFOs tend to hold fewer alternative investments in bank custody than small SFOs, as they hold more in direct investments than small SFOs on average.

•    As a result of their higher equity allocations, large SFOs have underperformed small and medium SFOs year-to-date ending 29 July 2022. This breaks with the trend over the last two years, where large SFOs outperformed small and medium SFOs for the opposite reason. 

•    Regionally, Asian SFOs outperformed their European and the Middle Eastern counterparts on a year-to-date basis. 

The introduction of the Credit Suisse SFO Index complements the simultaneously launched Credit
Suisse Single Family Office Survey Report 2022. In January 2022, Credit Suisse invited SFO clients to participate in our second annual online survey, which received a total of 116 responses from SFOs located in 50 countries across Europe, Latin America, the Middle East and Asia. 

Thomas Ang, Credit Suisse's Global Head of Family Office Services, said: "In their aim to secure long-term prosperity, many SFOs are responding to today's challenges in similar ways - such as shifting their investment strategy to preserving rather than growing wealth in an economic environment where inflation threatens to erode value. The 2022 survey also indicated that SFOs have yet to find a solution to the age-old challenge of managing generational conflict: The number one concern of SFO managers is the smooth transfer of wealth to younger family members, who may well have different priorities and risk appetites."

Key highlights from the Credit Suisse Single Family Office Survey Report 2022:

Linking generations

•    The survey revealed that over half of SFOs (53%) are finding it hard to include the next generation in decision-making and managing the wealth transfer. 
•    In addition, one-quarter (26%) indicated that relationships within the family are a significant business challenge.
•    Younger family members are often pivoting toward ideas and causes driven by purpose - notably sustainability, innovation and transparency. Yet in some cases, they have no say at all (31%).

Finding the right investment strategy
•    A total of 54% of respondents cited investment strategy and asset allocation as one of their top three challenges, while 47% cited achieving annual return targets.
•    Regional differences are apparent when it comes to who makes the decisions. In Asia, 61% said that investment decisions are made by selected family members while in Europe, this falls to 39%. By contrast, 50% of SFOs in Europe declare using formal investment committees as opposed to only 17% in Asia.

Unlocking private markets
•    On average, each SFO surveyed indicated an involvement with seven private deals in the past two years. Such keen interest may stem from the fact that family wealth often comes from a privately owned family business.
•    When it comes to finding deals, two-thirds declare using personal connections as a primary source and 42% declare working with private equity or venture capital funds.
•    Their favored timing for deals is at the early stage, with 68% of SFOs indicating a participation in A and B series funding. The top three sectors are innovative technology (notably FinTech and BioTech), IT and property.

Sustainability and the family 
•    ESG issues may not yet be a major influence on SFO investment strategy, with just under half of the respondents (45%) reporting that they do not allocate any funds to sustainable investments.
•    The reported reasons for not pursuing sustainable investing range from it not being part of the family's strategy (23%) to hard-to-measure performance (20%) and lower returns (11%). Risk, as well as a lack of both sustainable investing products and opportunities, are also cited.
•    Larger SFOs and those in EMEA, however, tend to invest more of their portfolio sustainably.