This is what super-rich investors buy during market panic

Wealthy investors hate to miss a buying opportunity, and many see big moves in the coming months.

With turmoil gripping markets in March, the mood among the super-rich was anything but panicky. In fact, as a new report by UBS discloses today, they were focused on borrowing more money to seize on opportunities presented by bombed-out shares and corporate bonds.

The strategy appears to have paid off, with more than three-quarters of respondents to the Swiss bank's annual survey of 120 family offices revealing that their portfolios performed in line or above their respective target benchmarks in the year to May. The average wealth of those participating in the research was $1.6 billion.

At the height of the market sell-off, the typical family fortune was down 13% compared with about a third for wider stock markets. Most have since turned around those losses.

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Josef Stadler, of UBS Global Wealth Management, said family offices embrace and manage risk like no other investor, regardless of how uncomfortable this strategy may have been during one of the most volatile periods in the history of financial markets.

He added:

“It is missing an opportunity that gives these clients the biggest headache, not making a loss. This is why they are looking to deploy cash to take advantage of market dislocations. We expect to see big moves in the coming months.”

Their risk appetite is shown by the fact that almost half (45%) of family offices have been looking to raise allocations in real estate and a similar number are aiming to increase their allocations in developed market equities, followed by emerging market equities (38%).

Many family offices have added to their cash and gold allocations since the market rebound, although the retreat to cash looks set to be temporary after 26% indicated they will lower cash reserves in the next two to three years. Gold could be a longer-term beneficiary, however, with 45% saying they will increase their exposure to the precious metal.

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The majority of family offices invest in private equity, with 69% viewing it as a key driver of returns. However, expectations for returns have fallen in light of the pandemic, with only 51% expecting outperformance over public investments. This compares with 73% before the crisis.

The report also debunks the theory that future generations will bring about a change in investing style. Over half of family offices say the next generation are just as interested in traditional investments as their parents, rising to 71% in Asia and the United States.

Almost three-quarters of offices aim to invest at least some of their assets sustainably, with this  trend set to accelerate over the coming years. Nearly two-fifths of family respondents said they would allocate most of their portfolios sustainably in five years’ time.

Currently, most offices primarily target the easier option of exclusion-based strategies, which make up 30% of their overall investments. ESG integration is catching up, however, as families look to more than double allocation over the next five years.