- At a time when inflection points spanning policy rates, inflation and economic growth appear likely, family offices are planning the biggest modifications in strategic asset allocation for several years.
- Family offices have already lifted allocations to hedge funds and are looking to add to developed market fixed income over the next five years.
- Family offices are also planning to raise allocations to emerging markets equities, following a perceived peak in the US dollar and the reopening of the Chinese economy.
- Thinking ahead to the next three years, family offices are most concerned about geopolitics. They appear less anxious about rising inflation, which was the top concern last year but currently ranks third, after geopolitics and recession.
- Behind these global averages, though, what they worry about depends on where they are based. In the US, recession is family offices’ greatest concern, while in the Asia-Pacific region and Europe geopolitics is the top concern for most family offices.
- Family offices are increasing their allocations in regions that have been less in favor for the past few years.
- While family offices still have almost half of their assets in North America, over a quarter are planning to increase allocations in Western Europe over the coming five years and almost a third are planning to raise and broaden their allocations in the wider Asia-Pacific region.
- The regime shift in the macroenvironment appears to be leading to the revival of fixed income and active management as a means of portfolio diversification.
- Currently, the most favored diversification strategy globally is high-quality short-duration fixed income.
- Family offices are also increasingly turning to active strategies: both through manager selection and/or active management within asset classes and hedge funds.
- When it comes to alternative asset classes, family offices intend to use their investment flexibility as a competitive advantage.
- One area of opportunity lies in private equity secondaries, where they are looking to overallocate as other limited partners seek liquidity amid portfolio rebalancing or forced selling.
- Additionally, those with hedge fund investments are planning to focus on strategies such as global macro and multi-strategy.
- While family offices aim to support generational transfer of wealth as their main purpose, most have yet to develop a succession plan for family members.
- Many family offices short of best practice in managing risks beyond investing and having a governance framework.
- Approximately half have specialist cyber security controls in place, yet over a third have been the targets of cyber-attacks.