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A version of this text first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide to the high-net-worth investor and consumer. Enroll to receive future editions, straight to your inbox.
While many institutional investors are trimming their alternative investments resembling hedge funds and private equity, family offices are pouring even extra money into the sector, in keeping with a latest study.
KKR’s family office survey of 75 chief investment officers around the globe found that family offices had 52% of their portfolios invested in alternative investments in 2023, up from 42% in 2022. The expansion in alternatives is coming on the expense of almost every other asset class, as their cash holdings fell from 11% to 9% from 2022 to 2023, and their holdings of publicly traded stocks fell from 32% to 29%.
“At a time when other allocators are pulling back from private allocations, this group’s intentions is to really increase exposure to non-public market investments again in 2024 to further make the most of the illiquidity premium,” the survey said.
The moves are part of a broad shift for family offices, the private investment vehicles for wealthy families, as they move away from public markets toward privates and alternatives — all the pieces from real estate and private equity to direct stakes or ownership in private corporations. Since family offices have longer time horizons than other investors, preferring assets that may grow over multiple generations, they will put money into private business and alternatives that pay a premium for more patient capital.
Family offices even have a special advantage in the present market, since banks and more traditional lenders are pulling back on loans to corporations. Many large institutional investors are shying away from private equity, enterprise capital and other asset classes which have suffered from an absence of initial public offerings and acquisitions.
“Now’s an interesting time to play offense, on condition that many others need liquidity, and we do not,” one CIO told KKR, in keeping with the report. “We’re particularly keen on going direct, for instance, in sectors where now we have owned businesses prior to now.”
Family offices plan to proceed to maneuver capital from cash and stocks into alternatives this yr, in keeping with the survey. Fully 42% plan to shrink their holdings of cash, and 31% plan to trim equities. Their favorite alternatives include private credit (with 45% planning so as to add to their holdings), followed by infrastructure (31%), private equity (28%) and commodities (18%).
Many are also planning to place more of their money to work in real estate, though only in specific sectors. The report said family offices are concentrating on data centers, logistics and warehouses “that capture the necessary post-pandemic investment themes.”
One other sector family offices like right away: oil and gas, in each private and public markets.
“Forced selling by other investors exiting the sector is creating tremendous opportunity,” the survey said.
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