Even as the market rises, family offices are investing a larger portion of their funds in private markets than the public stock market, according to a recent survey.
According to a Campden Wealth and RBC survey of family offices in North America, 29.2% of family offices’ investments were in private markets, which include venture capital, private debt, and private equity, as opposed to 28.5% in publicly traded stocks.
This is the first time that family offices have invested more in private markets than public stock, according to the survey. While their private investments increased from 27% to 31% the previous year, their stock allocation decreased. Cash, bonds, alternatives, hedge funds, commodities, real estate, and other investments were made with the remaining assets.
The study states that “family offices have maintained a consistent pattern of augmenting their allocations to private markets.”
According to the survey, 41% of family offices intend to increase their allocations to private equity funds, and a third plan to invest more money in direct private equity deals. As a result, they intend to focus even more heavily on the private markets in the upcoming months.
According to the survey, only 23% of respondents intended to increase their holdings of developed-market public stocks, while 15% intended to decrease them.
Even though stocks have recently rallied, the results highlight a broad change in the investment strategies of family offices, the private investment divisions of families with assets typically valued at $100 million or more. This year, the S&P 500 has gained 19% so far.
Family offices have jumped into private equity and so-called “direct deals,” where they purchase shares in private companies on their own, during the last ten years, particularly after the pandemic. Family offices claim that without the stock market’s volatility, private markets provide longer-term returns that are superior.
A common practice among family office founders, who are usually successful businesspeople who started and sold private companies, is to use their experience to find companies in their field and offer capital and advice in addition to their expertise.
It’s unclear if the wager will keep winning. Due to the lack of IPOs, private equity funds are having difficulty finding exits and dealing with expensive loans and tight financing.
Stocks may continue to rise in the interim as investors anticipate interest rate reductions in 2024.
Family offices ranked “private equity and venture capital” as the asset class that will yield the highest returns in the upcoming years, ahead of public equities.
According to the report, “family offices’ perspectives on the sources of the best long-term returns remain steadfast, despite the cautious approach they adopted in response to the financial markets’ 2022 retreat.” “Venture capital and private equity remain at the top of the list.”
Family offices are becoming more interested in alternative assets, such as commodities and real estate, in addition to private markets. “Invest in alternative asset classes” was the most popular response when asked what their top investment priorities were for the upcoming year.
Family offices are still cautious about the upcoming year. Recession risk was named by nearly 60% as the biggest financial risk, ahead of tensions with China and “excessive Fed tightening.”
Their bond holdings, which currently account for 8% of the group’s investments, may increase as a third plans to increase their bond holdings.
Family offices are also flush with cash, just waiting for the right chance to strike. They have 9% of their assets in cash, which is almost twice as much as they had in 2021.
According to Angie O’Leary, head of wealth planning at RBC Wealth Management, U.S., “they have a lot of cash on the sidelines.” “They can use that money for investments in private markets, real estate, or acquisitions. They are simply searching for that fantastic opportunity; they are not in a rush.
330 single-family offices and private multi-family offices worldwide were included in the survey, of which 144 were located in North America. The average total wealth of the family offices surveyed was $1.3 billion, which included private companies.
