According to a new study, nearly half of the investments of large family offices are in private markets and alternatives, as they exit the stock market in search of higher returns and lower volatility.
Family offices hold 46% of their total portfolios in alternative investments, including private equity, real estate, venture capital, hedge funds and private credit, according to the JP Morgan Private Bank Global Family Office Report released on Monday. are The family offices surveyed had 26% of their assets invested in publicly traded stocks.
The study surveyed 190 single-family offices worldwide, with an average of $1.4 billion in assets.
The study found that large family offices in the U.S. are focusing even more on alternatives. According to the survey, U.S. family offices with more than $500 million in assets invested more than 49 percent in alternatives, with 22 percent in public stocks.
Of the alternative investments detailed by the survey, 19% of family office holdings are 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 in family offices, the private investment arms of wealthy families that have exploded in size and number in recent years. With family offices now deploying more than $6 trillion in assets, they are becoming a powerful force in the private equity markets, direct deals, venture capital and private credit.
William Sinclair, head of the US family office practice at JPMorgan Private Bank, said that while stocks and bonds are important for family offices, they are increasingly turning to alternatives for higher returns.
Family offices typically have a longer time horizon, investing for the next 50 to 100 years or more, so they can hold assets for decades and earn so-called higher returns for more patient capital. can benefit from liquidity premium”. Unlike stocks, which can change rapidly from day to day or hour to hour, alternatives such as private equity and private companies have gradual value changes, smoothing out fluctuations.
“These clients are taking a multi-decade view of their wealth, and they can take on illiquidity,” Sinclair said. “Many of them are looking at opportunities outside of public markets.”
The report also states that many family office founders started out as entrepreneurs themselves and sold the business. Those founders now want to use their family offices to take ownership stakes in other private companies and use their experience to help the companies grow.
“[J.P. Morgan] “We’re fortunate enough to work with 60% of the billionaires in this country,” Sinclair said. “So there are companies that want our clients on their boards and on their cap tables with some of the biggest venture capital and private equity firms. Stay with there.”
Sinclair said he thinks family office investment in alternatives will continue to grow.
“In particular, I think you’ll see an increase in private credit,” he said. “And I think a lot of clients are under-allocated in infrastructure, and especially in digital infrastructure, when you think about some of these data centers that are being built right now and the power that’s needed.”
On their other investments, US family offices averaged 9% in cash, which is historically high, and 10% in bonds.
Surprisingly, less than half of family offices have a target return on investment, according to the survey. In the US, only 49% of family offices have a long-term target return for their portfolio. Among those with a return target, the average return target was 8%.
Still, family offices use different criteria for their investment portfolios, with more than three-quarters of those surveyed using some benchmark to evaluate performance. Larger family offices are more likely to use custom benchmarks, according to the survey.
Increasingly, family offices are looking to outsource more functions to reduce costs, particularly in smaller family offices under $500 million. The report states that 80% now use external advisors, primarily for investment management, access to managers, trade execution and portfolio construction.
Family offices are also increasingly turning to companies like JP Morgan for cybersecurity help to protect against hacking. Of family offices surveyed, 40% said cybersecurity was the biggest “gap” in their capabilities and nearly 1 in 4 said they had been the victim of a cyberattack.
“They’re looking to us for help,” Sinclair said.
Credit : www.cnbc.com