Family offices now have more of their money invested in private markets than the general public stock market — at the same time as the market rallies — in response to a latest 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, enterprise capital and private debt, in comparison with 28.5% in publicly traded stocks.
It marks the primary time within the survey that family offices had more invested in private markets than public stock. Their stock allocation has come down from 31% the 12 months before, while their private investments increased from 27%. The remaining assets were invested in money, bonds, alternatives, hedge funds, commodities, real estate and other investments.
“Family offices have maintained a consistent pattern of augmenting their allocations to private markets,” in response to the study.
They usually plan to pay attention much more heavily on private markets in the approaching months, in response to the survey, which found 41% of family offices plan to spice up their allocations to private equity funds, and a 3rd plan to place more money into direct private equity deals.
Only 23% planned so as to add to their developed-market public stocks, while 15% plan to trim their stock holdings, in response to the survey.
The outcomes underscore a sweeping shift within the investment practices of family offices, the private investing arms of families with assets typically of $100 million or more, even despite a recent rally in stocks. The S&P 500 is up 19% to date this 12 months.
Over the past decade, and especially after the pandemic, family offices have rushed into private equity and so-called direct deals, where they buy stakes in private firms on their very own. Family offices say private markets offer higher returns over the long run without the volatility of stocks.
Many family office founders, typically entrepreneurs who made their fortunes starting and selling private firms, also prefer to leverage their experience by finding firms of their area of expertise and providing advice together with capital.
It’s unclear whether the bet will proceed to repay. Private equity funds are scuffling with tight financing and expensive loans, together with a scarcity of exits given the drought of IPOs.
Meantime, as investors expect rate of interest cuts in 2024, stocks may proceed to rally.
When asked which asset class will give them the most effective returns in the approaching years, family offices ranked “private equity and enterprise capital” first, followed by public equities.
“Despite the cautious approach adopted by family offices in response to the (2022) retreat of financial markets, their perspectives on the sources of the most effective long-term returns remain steadfast,” the report said. “Private equity and enterprise capital proceed to move the list.”
Together with 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 approaching 12 months, the primary alternative was to “spend money on alternative asset classes.”
Still, family offices remain cautious concerning the 12 months ahead. Nearly 60% cited “recession risk” as the most important financial risk, followed by China tensions and “excessive Fed tightening.”
Their bond holdings, currently representing 8% of investments from the group, could expand further, with a 3rd planning so as to add to their bond positions.
Family offices even have a great amount of money waiting for the precise opportunity. They hold 9% of their assets in money, nearly double the degrees in 2021.
“They’ve lots of money on the sidelines,” said Angie O’Leary, head of wealth planning for RBC Wealth Management, U.S. “They’ll deploy that money on things like real estate or an acquisition or investing in private markets. They don’t seem to be in a rush, they’re just on the lookout for that great opportunity.”
The survey spanned 330 single-family offices and private multi-family offices world wide, with 144 in North America. The family offices surveyed had a median of $1.3 billion in total wealth, including private businesses.