Uncovered. Real-life asset allocation strategies.

The main priority of any family office is how it allocates its assets across investment opportunities to achieve growth and continued wealth creation (see Credit Suisse SFO Survey Report 2021).

At the event, leading SFOs discussed their investment strategies during the pandemic and looked ahead to “the great transition” and how it will affect asset allocation. They also took part in a live poll, revealing that volatility is their main concern, and discussed ways to protect their portfolios.

Watch SFOs in Dialogue virtual event highlights

Watch how two very different family offices manage their asset allocation and investment strategies, and what their thoughts about the future are.

Many SFOs took advantage of market falls and the overall uncertainty during the pandemic to build up positions in undervalued assets such as equities or to get into private equity. Now, they need to consider whether to reduce or sell these holdings, and how to invest strategically for the long term.

Wirtgen Invest, based in Germany, entered the crisis with plenty of cash and liquidity. This allowed it to quickly build up its positions in shares, private equity, and real estate, according to Dr. Jörg Rahn, Wirtgen’s chief investment officer.

“We’re highly overweight in equities,” said Dr. Rahn, noting that next year the SFO plans to reduce these holdings and move to bonds, as well as to private equity and real estate “to become much safer.”

Matthew Norman, chief investment officer of Kenjiro Private Office, said that at one point in 2021, they went from almost zero to 20% in public markets before taking profits. “But generally speaking, the long-term belief of the family itself is in long-term markets, in long-term capital growth, and being a steady partner with our investments,” he added.

For him, private equity plays well with his client family, who have “a dislike for too much volatility.” With its structural inclination toward the long term, real estate is also an investment priority.

Big swings in price

During the discussion, a live poll revealed that volatility is the top concern among the 36 SFOs participating in the event, which together control over USD 20 billion of wealth. After volatility, their main concerns in order are lower corporate margins, monetary tightening, and inflation.

Dr. Rahn suggested putting options as protection against a sudden event and US Treasuries, Bunds and gold as short-term solutions for volatility. For long-term protection against big price swings, he favors private equity.

“The best defence against volatility is really to just concentrate on the long term and hold what you have,” said Mr. Norman, adding that investors should be prepared to add to positions as prices fall and ensure they have the right credit lines in place to avoid margin calls.

He also pointed out that returns from private equity in the past couple of years have been stellar, with tech growth funds producing returns of 40%. Looking ahead, investors need to temper their expectations, he cautioned, as he anticipates internal rates of return to be less than 20% going forward.

Inflation and monetary tightening

Labor and supply chain shortages have led to inflation, forcing SFOs to hunt for yield. However, Dr. Rahn expects the period of higher inflation to be “very transitory because we have a deflationary environment, so that means the deflationary pressures will come up again someday.”

Mr. Norman continued, “It’s a lot of noise, this inflation conversation, whether transitory or longer term… for us we’re still hunting for yield. Sweating the portfolio as best we can and hoping the banks will give us the lead as well, when the time is right.”

In our Investment Outlook 2022, you can find the Credit Suisse House View for 2022 and more analysis about the macro and micro economic trends affecting investment opportunities, to help you plan and stay a step ahead.