Family offices now have more of their money invested in private markets than in the public equity market – even as the market rallies – according to a new survey.
A survey of North American family offices conducted by Campden Wealth and RBC found that family offices had 29.2% of their investments in private markets, which include private equity, venture capital and private debt, compared with 28.5% in publicly traded equities.
This is the first time in the survey that family offices have invested more in private markets than in public equities. Their allocation to equities fell from 31% a year earlier, while their private investments rose from 27%. The remaining assets were invested in cash, bonds, alternatives, hedge funds, commodities, real estate and other investments.
“Family offices have maintained a consistent pattern of increasing their allocations to private markets,” says the study.
And they plan to focus even more on private markets in the coming months, according to the survey, which found that 41% of family offices plan to increase their allocations to private equity funds, and a third plan to put more money into direct private equity deals.
Only 23% plan to increase their public equity allocations in developed markets, while 15% plan to reduce their equity holdings, according to the survey.
The findings underscore a profound shift in the investment practices of family offices, the private investment arms of families with typically $100 million or more in assets, despite the recent rally in equities. The S&P 500
is up 19% so far this year.
Over the past decade, and especially since the financial crisis, family offices have rushed into private equity and so-called direct deals, where they buy stakes in private companies themselves. Family offices say private markets offer better long-term returns without the volatility of equities.
Many family office founders, typically entrepreneurs who made their fortunes building and selling private companies, also like to put their experience to work by finding companies in their area of expertise and providing advice along with capital.
It’s unclear whether the bet will continue to pay off. Private equity funds are struggling with tight funding and expensive loans, as well as a lack of exits amid a drought of IPOs.
Meanwhile, as investors anticipate interest rate cuts in 2024, equities could continue to rally.
When asked which asset class would give them the best returns in the coming years, family offices ranked ‘private equity and venture capital’ first, followed by public equities.
“Despite the cautious approach adopted by family offices in response to the (2022) retreat in financial markets, their views on the sources of the best long-term returns remain unchanged,” the report says. “Private equity and venture capital continue to top the list.”
In addition to private markets, family offices are also showing increasing interest in alternative assets, including real estate and commodities. When asked about their investment priorities for the coming year, the top choice was “investing in alternative asset classes”.
Nevertheless, family offices remain cautious about the year ahead. Nearly 60% cited ‘recession risk’ as the biggest financial risk, followed by tensions in China and ‘excessive Fed tightening’.
Their bond holdings, which currently account for 8% of the group’s assets, could expand further, with a third planning to increase their bond positions.
Family offices also have a large amount of cash waiting for the right opportunity. They hold 9% of their assets in cash, almost double the level in 2021.
“They’ve got a lot of cash on the sidelines,” says Angie O’Leary, head of wealth planning at RBC Wealth Management in the U.S. “They can put that cash to work in things like real estate or an acquisition or investing in private markets. They’re not in a hurry, they’re just looking for this great opportunity.”
The survey covered 330 single-family offices and private multi-family offices around the world, including 144 in North America. The family offices surveyed had an average of $1.3 billion in total assets, including private businesses.
