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Family offices now have a surprising investment trend with more of their money going into private markets than the public stock market, according to a ground-breaking survey.
An insightful survey of North American family offices, carried out by Campden Wealth and RBC, unveiled that family offices had 29.2% of their investments in private markets, consisting of private equity, venture capital, and private debt, compared to 28.5% in publicly traded stocks.
This marks the first time in the survey’s history where family offices had more invested in private markets than publicly traded stocks. It is noted that their stock allocation has declined from 31% the previous year, while their private investments surged from 27%. The rest of their assets were allocated to cash, bonds, alternatives, hedge funds, commodities, real estate, and other investments.
According to the study, “Family offices have consistently been ramping up their allocations to private markets.”
Additionally, the survey indicates that family offices plan to intensify their focus on private markets in the upcoming months. 41% of family offices intend to bolster their allocations to private equity funds, while a third plan to inject more capital into direct private equity deals.
In contrast, only 23% planned to increase their developed-market public stocks, while 15% are looking to downsize their stock holdings based on the survey’s findings.
The results underscore a significant shift in the investment strategies of family offices, the private investing entities of families with assets typically exceeding $100 million, despite the recent stock market rally with the S&P 500 up 19% so far this year.
Over the last decade, especially after the pandemic, family offices have been swiftly embracing private equity and direct deals, showing their propensity to invest in private companies independently. Family offices believe that private markets offer superior long-term returns without the stock market volatility.
Many family office founders, typically entrepreneurs who amassed their wealth by founding and selling private companies, also leverage their expertise by scouting for companies in their field and providing both financial and operational guidance.
The potential success of this strategy remains uncertain. Private equity funds are grappling with tightened financing, costly loans, and a lack of exits due to the dearth of initial public offerings.
Meanwhile, with anticipated interest rate cuts in 2024, stocks may continue to soar.
When asked about the asset class that will yield the best returns in the coming years, family offices ranked “private equity and venture capital” on top, followed by public equities.
Despite the cautious approach taken by family offices in response to the 2022 market retreat, their positive outlook on the definitive sources of long-term returns remains unyielding. “Private equity and venture capital continue to top the list,” the report stated.
In addition to private markets, family offices are increasingly interested in alternative assets, including real estate and commodities. When asked about their investment priorities for the coming year, the top choice was to “invest in alternative asset classes.”
Nonetheless, family offices remain cautious about the year ahead. Nearly 60% cited “recession risk” as the greatest financial threat, followed by tensions with China and “excessive Fed tightening.”
Their bond holdings, currently making up 8% of their investments, could see further expansion, with a third planning to increase their bond positions.
Family offices also have substantial cash reserves waiting for lucrative opportunities. They currently hold 9% of their assets in cash, nearly double the levels in 2021.
“They have a lot of cash on the sidelines,” said Angie O’Leary, head of wealth planning for RBC Wealth Management, U.S. “They can deploy that cash on things like real estate or an acquisition or investing in private markets. They’re not in a hurry, they’re just looking for that great opportunity.”
The survey encompassed 330 single-family offices and private multi-family offices worldwide, with 144 in North America. The family offices surveyed had an average total wealth of $1.3 billion, including private businesses.
