Family Offices Embrace Optimism: Investing Boldly in Stocks and Private Equity for 2024

**Family Offices on the Rise: A New Era of Investment Optimism**

In a landscape marked by economic uncertainty over the past few years, family offices—the private investment entities of ultra-wealthy families—are signaling a noteworthy shift in their investment strategies. Recent findings from Citi Private Bank’s 2024 Global Family Office Survey reveal that these entities are displaying an unprecedented level of optimism, with 97% of respondents anticipating positive returns in the coming year and nearly half projecting double-digit gains.

Hannes Hofmann, head of the family office group at Citi Private Bank, remarked, “This is the most optimistic outlook we’ve seen,” emphasizing a burgeoning appetite for risk among family offices. After a prolonged period of cash hoarding in response to economic volatility, these investment arms are clearly ready to take bolder steps into the market.

### Shifting Strategies: From Caution to Aggression

For two years, family offices operated in a defensive stance, prioritizing capital preservation as they braced for a potential recession. Now, however, there is a palpable transition towards more aggressive investments, particularly in private equity. The survey highlights that 47% of family offices intend to increase their allocations to direct private equity within the next 12 months—the highest percentage across all investment categories. This reflects a broader trend where families are not just seeking to protect their wealth but actively pursue growth opportunities.

Interestingly, private equity funds are also in the spotlight, with 41% of those surveyed planning to boost their investments in this area. This shift is particularly significant given the historical context; during previous economic downturns, many family offices opted for lower-risk assets, showcasing a more conservative investment philosophy.

### Embracing Public Markets

With interest rates projected to decline, family offices are rekindling their interest in public equities. Approximately 39% of respondents are looking to increase their stakes in developed-market equities, primarily in the U.S., while only 9% are considering divesting. This renewed enthusiasm for stocks is underscored by the S&P 500’s impressive nearly 20% rise year-to-date, which has likely buoyed investor confidence.

Public equities now constitute 28% of a typical family office’s portfolio, a notable increase from 22% last year. Hofmann noted, “Family offices are taking money out of cash, and they’ve put money into public equities, private equity, direct investments, and also fixed income. But primarily it’s going into risk-on investing. That is a very significant development.”

### The Fixed-Income Comeback

Fixed-income assets have also gained traction among family offices as interest rates start to trend downward. Half of the surveyed family offices expanded their fixed-income exposure last year, marking it as the largest growth category. This trend suggests that family offices are diversifying their portfolios to mitigate risk while still seeking yield in a low-interest environment.

### Navigating Concerns: Risks Ahead

Despite this surge in optimism, family offices are not oblivious to potential risks. Over half of them expressed concerns regarding the trajectory of interest rates. Additionally, geopolitical tensions, particularly between the U.S. and China, rank as a significant worry, alongside fears of market overvaluation. Notably, this survey marks the first time since 2021 that inflation has not been the primary concern for family offices, highlighting a shift in their focus and a potential easing of inflationary pressures.

### The Allure of Alternatives

What truly distinguishes family offices from traditional investors is their proclivity for alternative investments. These alternatives—including private equity, venture capital, real estate, and hedge funds—now represent 40% of the average family office portfolio. Hofmann asserts, “It’s a significant allocation that shows family offices are asset allocators who are long-term investors, highly sophisticated and taking a long-term view.”

Artificial intelligence (AI) has emerged as the leading investment theme for family offices this year. Notable names like Jeff Bezos and Bernard Arnault have invested in AI startups, and over half of the family offices surveyed have exposure to AI through various investment vehicles. In contrast, the crypto craze seems to have faded; only 17% of family offices are invested in digital assets, with many preferring to steer clear of this volatile sector.

Hofmann elaborates on this divergence: “AI is a theme that people are interested in and they’re putting real money into it. With crypto, people were interested in it, but at best, they put some play money into it.” This difference in commitment underscores a more deliberate and strategic approach to investment themes that hold the promise of robust returns.

### Conclusion: A Forward-Looking Perspective

As family offices transition from a defensive posture to one of confident investment, their strategies are becoming increasingly sophisticated and diversified. With an eye on emerging opportunities, particularly in private equity and AI, these wealthy entities are poised to play a significant role in shaping market dynamics in the coming years. Their ability to navigate risks while capitalizing on growth trends will undoubtedly provide valuable lessons for investors across the spectrum. In a world where economic landscapes are ever-changing, family offices exemplify a forward-looking approach that combines prudence with ambition.