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There is an expectation that following a major global event, such as the current Covid-19 pandemic, people change their investment behaviour. While we did see some short-term reactionary changes driven by market volatility, the long-term behaviour remains relatively unchanged.

From the results of this year’s Julius Baer Family Barometer, we can see that while overall the investment behaviour of HNW and UHNW families has remained relatively stable, a few distinct themes have increased in prominence over the past 12 months, namely responsible investing and private market investments.

Developing trends
The interest in ESG, sustainability, and impact is not a new trend but it is a relatively recent one that has accelerated at a huge rate. As the Barometer shows, this is one of the most enquired-about topics among HNW and UHNW families and the one that has grown most in interest in the past five years. Interest has certainly grown due to an increased focus on the environment and conscious practices since the onset of the pandemic, but younger generations of investors have been driving this trend for a number of years now and it will continue to grow long after the current situation settles.

The second-fastest-growing discussion topic is private investments. Many impact investments are private investments, so it is not surprising that these two topics appear together. There are a number of factors that play in favour of private investments at the moment. As we saw when the pandemic hit last year, liquid markets in particular can be tremendously volatile in the short run. That market-to-market volatility in a portfolio can make for sleepless nights for ultra-high-net-worth individuals as it is difficult for them to ignore, however hard we try to help them understand that it is a temporary phenomenon and actually an investment opportunity.

Many people assume that investing in public, liquid markets is difficult and risky, whereas private markets are much easier and safer, but this is not the case. Both have their advantages and disadvantages. However, with private investments you don’t see the price fluctuation, so they feel much more stable. They also have an element of exclusivity around them as not everyone can invest in companies pre-IPO, and that exclusivity is driving the appetite for such investments among wealthy investors and families. While private markets are an important part of a HNWI’s portfolio, they should not completely exclude or forget public equities as these have underappreciated merits.

A shift in priorities
The main change we have seen as a result of the pandemic is that it has shifted people’s priorities. In the US, for example, many baby boomers have taken early retirement. Not only did their portfolios perform very well thanks to the swift reflation of markets by the Federal Reserve, which meant their net worth by the end of 2020 had substantially increased, but also they realised that there is more to life than work. The new focus on health and family during the pandemic, combined with the convenience of working from home, has pushed considerations such as quality of life and family time much higher up people’s lists of priorities. While there have been common interests and developments among wealthy families, it is important to remember that they have highly idiosyncratic needs and so their individual situations and investment requirements continue to be very diverse. When you have large wealth to manage and handle, it requires a lot of time, attention, and care. The complexity is multiple times that of the average client or investor and it increases even further for families with multiple stakeholders who can hold different views. Making sure that everyone is in their comfort zone and aligned when it comes to how their money is managed is a complex problem to solve.

As a wealth manager, the first thing we have to do is understand the psychology of the families we are working with. The second step is to understand their life projects and their financial means so that we have a comprehensive view of their balance sheets, including the assets that we might not manage. For the families themselves, the most important thing they can do is ensure they have a good governance structure in place with very clear guidelines as to who is responsible and accountable for what. This will allow them to assess results and ensure everything is consistent with what the family wants to achieve. Only when this framework is in place can we work together with families to establish a strategy and deploy their capital effectively.

If money moves within a family from Gen X to Gen Z you will see bigger differences and potential conflict in how they think the money should be managed.

Yves Bonzon, Group Chief Investment Officer

Complexity abounds
With UHNW investors, you can examine the granular detail of asset allocation in a far more specialised, focused, and complex way than you might with an investor with a smaller portfolio. The additional complexity will not make much of a difference on a USD 2 million portfolio in absolute terms. When it’s on a USD 200 million portfolio, however, that extra complexity will, in dollar terms, make a difference. This is why having alignment and taking the time to regularly revisit strategic allocation across the entire opportunity set – from public and private markets across the whole asset class spectrum, including considering crypto-assets – is also very important for wealthy families and family offices today. In order to manage all of these variables, having an experienced and trusted sparring partner can be beneficial, as they can help go into the finer details of strategy and asset allocation to best meet families’ individual needs. They can also help to mitigate the effects of common pitfalls such as overconfidence, anchor bias (when an investor becomes fixated on a particular level of wealth, which can impair their ability to make pragmatic decisions regarding that wealth), or a lack of preparation that comes from a sudden liquidity event such as the IPO or sale of a company.

They can also help families navigate particularly difficult events such as periods of wealth transition. When it comes to investing there are not many differences between Millennials and Gen X – who still own majority of the wealth – or between Millennials and Gen Z. However, if money moves within a family from Gen X to Gen Z you will see bigger differences and potential conflict in how they think the money should be managed; independent mediation and guidance is often required to help preserve and grow the family wealth in these situations. While the past 12 months have been unprecedented in many ways, the investment behaviour of HNW and UHNW families remains relatively unchanged and trends that were already developing before the pandemic continue to dominate. However, the pandemic has changed families’ perspectives and complexity continues to grow for them. Having a trusted advisor in these uncertain times is more important than ever.

Julius Baer Family Barometer 2021

Our Family Barometer examines the key findings of a yearly survey of private clients’ services experts who work with wealthy families. It explores the most pressing concerns and challenges faced by wealthy families, as well as their current needs. Please download a copy of the report to learn more.

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