Family offices, the private investment vehicles for wealthy families, are increasingly shifting their focus towards alternative assets, according to a recent study conducted by KKR. The survey, which involved 75 chief investment officers from around the world, revealed that family offices had 52% of their portfolios invested in alternative investments in 2023, up from 42% in the previous year.
This move towards alternative investments comes at the expense of other asset classes, with cash holdings falling from 11% to 9% and holdings of publicly traded stocks declining from 32% to 29%. The study suggests that family offices are actively seeking exposure to private market investments to take advantage of the illiquidity premium.
The shift towards alternative assets reflects a broader trend among family offices as they move away from public markets and towards private investments. These investments can range from real estate and private equity to direct stakes or ownership in private companies. Family offices have longer time horizons compared to other investors, allowing them to invest in assets that will grow over multiple generations. They are willing to provide patient capital and can afford to wait for returns.
In the current market environment, family offices have an advantage over traditional lenders and banks, which are pulling back on loans to companies. Many institutional investors are also shying away from private equity, venture capital, and other asset classes due to a lack of initial public offerings and acquisitions. This creates an opportunity for family offices to play offense and invest in sectors where others are in need of liquidity.
The survey found that family offices plan to continue moving capital from cash and stocks into alternative assets this year. About 42% of family offices intend to reduce their cash holdings, while 31% plan to trim their equity investments. The most favored alternatives among family offices include private credit, followed by infrastructure, private equity, and commodities.
Real estate is also a sector in which family offices are planning to allocate more capital, particularly in specific sectors such as data centers, logistics, and warehouses that align with post-pandemic investment themes. Additionally, family offices are finding opportunities in the oil and gas sector, both in private and public markets, as forced selling by other investors exiting the sector creates attractive investment prospects.
Overall, family offices are embracing alternative assets as they seek to capitalize on the illiquidity premium and take advantage of opportunities in sectors where others are in need of liquidity. With their longer time horizons and patient capital, family offices are well-positioned to navigate the current market landscape and generate attractive returns for wealthy families over multiple generations.
