Family offices (FOs) continue to expand across the globe: according to Deloitte, there will be 10,720 FOs by 2030. Given this rapid growth, there has been interest in FOs’ investment and operational strategies. Several recent studies have forecasted the future of FOs’ tactics, and have found a preference for private equity investment, a budding interest in novel digital assets, and a tendency to invest in developed markets specific to a given geographic home base.
- Heavier Shift to Private Equity and Direct Investing
Family office investment strategies have trended away from public equities and toward privately held investments. Per Deloitte, private equity accounted for 30% of the average family office portfolio in 2023, an increase from 22% just two years earlier. Conversely, family office portfolios saw an average drop in public equities holdings from 2021 (34%) to 2023 (25%).
The benefits of private equity investments align with an FO’s goals (i.e., investment yield and protection from market fluctuations). Many FOs believe the long term yields of private equity investment outpace those of the public market. Also, private markets offer inherent diversification in their funds and are less susceptible to market volatility compared to public markets, a quality that many FOs may find attractive.
According to Deloitte, FOs now hold more direct investments than fund investments, with FOs holding 17% of their portfolios through direct investments and only 10% via funds. Direct investment may allow greater control—and higher returns—than investing through a fund.
- Asset Allocation
In the UBS 2024 Global Family Office Report, the average FO allocated 16% of their portfolios into fixed income markets. Interestingly, the ramp up in fixed income investments is funded mainly through FOs’ cash and cash equivalents balances.
Despite current market volatility, a choice to stay invested in public equities may signal a positive outlook on the public market’s long term performance. This interpretation is further supported by FOs’ preference toward short duration bonds. Indeed, UBS found that 74% of the average FO fixed income assets had a duration of five or fewer years.
- Investments in Technology, Artificial Intelligence, and Cryptocurrency
Generative AI is a popular focus among FOs. Over 75% of FOs plan to invest in the space within the next two to three years, per UBS.
Family offices are also embracing cryptocurrency. The Eyes on the Horizon report from Goldman Sachs found that 26% of FOs invest in cryptocurrency; when looking at the broader digital asset sector, which also includes blockchain technology, stablecoins and non-fungible tokens, this percentage grows to 32%. Compare this to 2021 when just 16% of FOs held cryptocurrency investments.
4. Geographic Allocation
A whopping 94% of holdings are invested in the United States, China, India, and other developed markets. According to the Goldman Sachs Eyes on the Horizon report, FOs plan to retain a similar allocation for the next 12 months.
However, individual responses to that report’s authors show that an FO’s geographic location may indicate which developed markets it plans to invest in over the upcoming 12 months. Investors still view the United States as an attractive investment environment, with 26% of FOs looking to increase US holdings in the forthcoming year. European, Middle Eastern, and African FOs, however, view India as a lucrative market, with 31% of respondents reporting an allocation increase to India in the next twelve months.
Conclusion
As the volume of FOs grows, FOs themselves will mature into established and independent structures. In the current economic environment, many FOs prefer private equity investment and hold cash in fixed income markets. Despite the potential for higher returns in developing markets, FOs have signaled their preference for developed markets for both long term growth and preservation of wealth.
