Rosalind Evans
In an era marked by cautious investment strategies, family offices are charting a distinct path by increasingly channelling their wealth into alternative assets, a recent KKR survey reveals. This move is driven by a strategic pivot from traditional asset classes to more unconventional ones, underscoring a broader trend among these private investment entities. As institutional investors scale back on their alternative investments, family offices seize the opportunity to expand their portfolios in this sector, highlighting a forward-looking approach to wealth management.
KKR’s comprehensive survey, which engaged 75 chief investment officers globally, illuminated this shift with compelling data. In 2023, family offices allocated 52% of their portfolios to alternative investments, a notable increase from the 42% recorded in 2022. This reallocation of assets is reshaping their investment landscape, as cash holdings and investments in publicly traded stocks have decreased. The survey noted, “At a time when other allocators are pulling back from private allocations, this group intends to increase exposure to private market investments again in 2024 to further take advantage of the illiquidity premium.”
Family offices, known for their long-term investment horizons, are uniquely positioned to capitalize on opportunities in private markets and alternatives, ranging from real estate and private equity to direct ownership stakes in private enterprises. Their investment philosophy is rooted in pursuing assets that promise growth over generations, making them well-suited for investments that reward patient capital. The current market dynamics, characterized by the retreat of banks and traditional lenders from company loans, further amplify the strategic advantage of family offices. As one CIO expressed in the KKR report, “Now is an interesting time to play offence, given that many others need liquidity, and we don’t.”
The survey also highlighted family offices’ investment intentions for the coming year, with many planning to reduce their cash and equity holdings in favour of alternative assets. Preferred alternatives include private credit, infrastructure, private equity, and commodities, with a particular interest in sectors like data centers, logistics, warehouses, and even oil and gas. These are perceived as ripe with opportunity due to forced selling by existing investors.
As family offices continue to navigate the evolving investment landscape, their strategic shift towards alternative assets differentiates their approach from traditional institutional investors. It sets a precedent for harnessing the potential of private market investments. This trend underscores the adaptability and foresight of family offices in pursuing growth opportunities that align with their unique investment philosophies and long-term objectives.
