A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide for high-net-worth investors and consumers. Sign up To receive future editions delivered directly to your inbox.
Family offices are at their most optimistic in years, plowing money into stocks and alternative investments as the Federal Reserve begins cutting interest rates, a new survey shows.
According to Citi Private Bank’s 2024 Global Family Office Survey, nearly all family offices (97%) expect to have positive returns this year, and nearly half expect to achieve double-digit gains.
“This is the most optimistic outlook we have ever seen,” said Hannes Hofmann, head of Citi Private Bank’s family office group, which has been conducting the survey for five years. “We clearly see an increase in risk appetite.”
The survey is the latest sign that family offices, the private investment arms of wealthy families, are moving away from two years of hoarding cash and bracing for the recession and starting to make more aggressive bets on market and valuation growth.
They particularly like private equity. Nearly half (47%) of family offices surveyed said they plan to increase their allocations to direct private equity in the next 12 months, the largest share of any investment category. Only 11% plan to reduce their PE holdings. Private equity funds ranked second, with 41% planning to increase allocations.
Family offices have also revived their interest in stocks as interest rates have fallen. More than a third (39%) of family offices plan to increase their allocation to equities in developed markets (mainly the United States), while only 9% plan to reduce their equity positions. This comes after 43% of family offices increased their investments in public equities last year.
Public stocks remain their largest holding among major asset classes, with stocks accounting for 28% of their typical portfolios, up from 22% last year, the survey showed.
“Family offices are taking money out of cash and putting money into public equities, private equity, direct investments and fixed income,” said Hoffman. “But mostly doing venture capital. That’s a very important development.”
As interest rates start to fall, fixed income has become another favorite among family offices. Half of the family offices surveyed increased their fixed income investments last year, the largest amount of any category, and a third plan to increase their fixed income investments this year.
along with S&P 500 Index It’s up nearly 20% so far this year, and family offices are looking for strong returns in 2024. Nearly half (43%) expect returns of more than 10% this year. More than one in 10 large family offices (those with assets over $500 million) are expected to return more than 15% this year.
Of course, there are risks to their optimism. When asked about near-term concerns about the economy and financial markets, more than half cited the direction of interest rates. Sino-US relations are their second biggest concern, and market overvaluation ranks third. Citi said the survey marks the first time since 2021 that inflation is not the top concern for the family offices surveyed.
One of the biggest differences between family offices and other individual investors is their interest in alternatives. Private equity, venture capital, real estate and hedge funds currently account for 40% of the portfolios of family offices surveyed. This number is likely to continue to grow, especially as more family offices make direct investments in private companies.
“This is a significant allocation and shows that family offices are asset allocators, they are long-term investors, highly sophisticated and have a long-term view,” said Hoffman.
One of the biggest themes in their private investments is artificial intelligence. The family offices of Jeff Bezos and Bernard Arnault have both invested in artificial intelligence startups, and repeated surveys show that artificial intelligence is the number one investment theme for family offices this year. The Citi survey shows that more than half of family offices have exposure to artificial intelligence in their portfolios through public equity, private equity funds or direct private equity. Another 26% of family offices are considering increasing investment in artificial intelligence.
Hoffman said artificial intelligence has proven to be different from previous investment innovations, such as cryptocurrency, environment, society and governance (ESG). Only 17% of family offices have invested in digital assets, with the vast majority expressing no interest.
“Artificial intelligence is a subject that people are interested in and they are investing real money in,” Hoffman said. “With cryptocurrencies, people are interested, but at best, they’re putting some money in the game. With ESG, we found a lot of people saying they were interested, but a much smaller percentage of family offices. In fact, Money was really invested.
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