Family offices are more optimistic than they’ve been in years, investing their money in stocks and alternative investments because the Fed begins to chop rates of interest, in keeping with a brand new survey.
Almost all family offices (97%) expect positive returns this 12 months, and almost half expect double-digit growth, in keeping with Citi Private Bank's Global Family Office Survey 2024.
“This is the most optimistic outlook we have ever seen,” said Hannes Hofmann, head of the family office group at Citi Private Bank, which has been conducting the survey for five years. “What we are clearly seeing is an increase in risk appetite.”
The survey is the newest sign that family offices – the private investment arms of rich families – at the moment are betting more aggressively on market and valuation growth after two years of hoarding money and bracing for a recession.
Private equity is especially popular. Almost half (47 percent) of the family offices surveyed plan to extend their holdings in direct private equity in the following twelve months. This is the very best proportion of all investment categories. Only 11 percent plan to cut back their PE holdings. Private equity funds are available in second, with 41 percent planning to extend their holdings.
As rates of interest fall, demand for equities can be growing amongst family offices. More than a 3rd (39 percent) of family offices plan to extend their allocation to equities from developed countries, especially the USA, while only 9 percent plan to cut back their equity holdings. This is after 43 percent of family offices increased their holdings in listed equities last 12 months.
Listed securities remain their largest holding amongst major asset classes, with equities making up 28 percent of their typical portfolio, up from just 22 percent last 12 months, in keeping with the survey.
“Family offices are taking money out of cash and investing in public equities, private equity, direct investments and also fixed income securities,” Hofmann said. “But primarily it is going into risky investments. This is a very significant development.”
Fixed income has develop into one other favorite of family offices as rates of interest begin to fall. Half of the family offices surveyed increased their fixed income investments last 12 months—the most important share of any category—and a 3rd plan to extend their fixed income investments even further this 12 months.
With the S&P500 Family offices, up nearly 20% up to now this 12 months, expect 2024 to finish with strong returns. Nearly half (43%) expect returns above 10% this 12 months. More than 1 in 10 large family offices – those with assets over $500 million – expect returns above 15% this 12 months.
Of course, their optimism also comes with risks. When asked about their short-term concerns in regards to the economy and financial markets, greater than half cited rate of interest trends. US-China relations were ranked as their second biggest concern, and market overvaluation got here in third. According to Citi, the survey was the primary time since 2021 that inflation was not the most important concern for the family offices surveyed.
One of the massive differences between family offices and other private investors is their appetite for alternatives. Private equity, enterprise capital, real estate and hedge funds now make up 40% of the portfolios of the family offices surveyed. This number is anticipated to proceed to rise, especially as more family offices invest directly in private firms.
“This is a significant allocation that shows that family offices as asset managers invest for the long term, are highly qualified and have a long-term perspective,” said Hofmann.
One of crucial themes for his or her private investments is artificial intelligence. The family offices of Jeff Bezos and Bernard Arnault have each invested in AI startups, and repeated surveys show that AI is the No. 1 investment theme for family offices this 12 months. More than half of the family offices surveyed by Citi have invested in AI of their portfolios through public equities, private equity funds or direct private equity exposure. Another 26% of family offices are considering increasing their AI investments.
According to Hoffman, AI has already proven to be different from previous investment innovations resembling crypto or environmental, social and governance (ESG). Only 17 percent of family offices put money into digital assets, while the overwhelming majority say they don’t have any interest.
“AI is a topic that people are interested in and investing real money in,” Hofmann said. “With crypto, people were interested in it, but they invested some play money at best. With ESG, we find that a lot of people say they're interested in it, but a much smaller percentage of family offices are actually investing real money in it.”
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