Nearly half of the investments of large family offices are in private markets and alternatives as they seek higher returns and lower volatility away from equity markets, a new study shows.
The family office’s alternative investments make up 46% of its total portfolio, including private equity, real estate, venture capital, hedge funds and private credit, according to the J.P. Morgan Private Bank Global Family Office Report released on Monday. The family offices covered by the survey invested 26% of their assets in publicly traded stocks.
The study surveyed 190 single-family offices around the world, with average assets of $1.4 billion.
The study found that large U.S. family offices are more focused on alternative investments. The survey shows that more than 49% of U.S. family offices with assets of more than $500 million invest in alternative investments, of which 22% invest in public stocks.
Of the alternative investments detailed in the survey, 19% of family office holdings were in private equity, 14% in real estate, 5% in venture capital, 5% in hedge funds and 4% in private credit.
The shift from public to private markets represents a major shift for family offices, the private investment arms of wealthy families that have exploded in size and volume in recent years. With more than $6 trillion in assets currently deployed, family offices are becoming a powerful force in private equity markets, direct transactions, venture capital and private credit.
William Sinclair, head of U.S. family offices at J.P. Morgan Private Bank, said that while stocks and bonds remain important to family offices, they are increasingly turning to alternatives seeking higher returns.
Family offices typically have longer investment horizons, investing 50 to 100 years or more into the future, so they can hold assets for decades and benefit from the so-called “liquidity premium” that brings in more patient capital. for higher returns. Unlike stocks, which can fluctuate wildly from day to day or even hour to hour, alternative investments such as private equity and private companies have more gradual valuation changes, smoothing out the volatility.
“These clients are looking at their wealth with a multi-decade horizon and they can afford illiquidity,” Sinclair said. “Many of them see opportunities outside of the public markets.”
The report also stated that many family office founders were entrepreneurs themselves and later sold their businesses. The founders now hope to use their family offices to acquire ownership stakes in other private companies and apply their experience to help the companies grow.
“(JPMorgan Chase) is lucky to be able to work with 60 percent of the billionaires in this country,” Sinclair said. “As a result, there are companies that want our clients on their boards and ownership structures, sitting alongside some of the largest venture capital and private equity firms.”
Sinclair said he believes family office investment in alternative investments will continue to grow.
“In particular, I think you’ll see growth in private credit,” he said. “When you think about some of the data centers that are being built now and the power that’s required, I think a lot of customers are under-allocated in terms of infrastructure, especially digital infrastructure.”
Among other investments, the average cash ratio of U.S. family offices is 9%, a record high, and the bond ratio is 10%.
Surprisingly, less than half of family offices have an overall investment return target, the survey showed. In the United States, only 49% of family offices have set long-term target returns for their portfolios. Among those who do have a return target, the median return target is 8%.
Despite this, family offices still use a variety of benchmarks for their portfolios, with more than three-quarters of respondents using some benchmark to assess performance. The survey shows that larger family offices are more likely to use customized benchmarks.
Family offices are increasingly looking to outsource more functions to reduce costs, especially smaller ones below $500 million. The report said that 80% of companies now use external advisors, mainly for investment management, access to managers, trade execution and portfolio construction.
Family offices are also increasingly turning to companies such as JPMorgan Chase & Co. for cybersecurity assistance to prevent hackers. Of the family offices surveyed, 40% said cybersecurity was their biggest capability “gap,” and nearly a quarter said they had been the victim of a cyberattack.
“They’re looking to us for help,” Sinclair said.
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