- Family offices allocate 46% of their total portfolios to alternative investments, according to the JPMorgan Private Bank Global Family Office Report.
- Alternatives include private equity, real estate, venture capital, hedge funds, and private credit.
- Unlike stocks, which can fluctuate widely, alternative investment products such as private equity and privately held companies have more gradual valuation changes, smoothing out volatility.
Large family offices are exiting the stock market in search of higher returns and lower volatility, with nearly half of their investments going to private and alternative markets, according to new research.
Family offices have large portfolios in alternative investments including private equity, real estate, venture capital, hedge funds and private credit, according to JPMorgan Private Bank’s Global Family Office Report released Monday. It accounts for 46% of the total. The family offices surveyed had 26% of their assets invested in listed stocks.
The study looked at 190 single-family offices around the world with average assets of $1.4 billion.
Large U.S. family offices have an even greater concentration of alternatives, the study found. According to the study, more than 49% of U.S. family offices with assets of $500 million or more invested in alternative investments and 22% invested in public equities.
Of the alternative investments detailed in the study, 19% of family office holdings were 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 for family offices, the private investment arms of wealthy families, which have exploded in size and number in recent years. Family offices currently deploy more than $6 trillion in assets and are becoming a powerful force in private equity markets, direct deals, venture capital, and private credit.
William Sinclair, head of JPMorgan Private Bank’s U.S. family office practice, said stocks and bonds remain important for family offices, but there is a growing shift to alternatives in search of higher returns. said.
Because family offices typically have long time horizons to invest for the next 50 to 100 years or more, they hold assets for decades and enjoy the so-called “liquidity premium” of higher returns on more patient capital. can benefit from. Unlike stocks, which can fluctuate wildly from day to day or even hour to hour, alternatives such as private equity and private companies have more gradual valuation changes and smooth out volatility.
“These clients view their wealth in terms of decades and can enjoy illiquidity,” Sinclair said. “Many of them see opportunities outside of the public markets.”
The report also notes that many family office founders started out as entrepreneurs themselves and sold their businesses. These founders now want to use their family offices to acquire ownership stakes in other private companies and apply their experience to helping companies grow.
”[JPMorgan] “We’re fortunate to work with 60% of the billionaires in this country, so we’re able to get our clients on boards and cap tables and work with large venture capital and private equity firms. There are companies that want to be on the same page,” Sinclair said. There. “
Sinclair said he believes the growth in investment in family office alternatives will continue.
“I think we’re going to see growth, especially in private credit,” he said. “And given some of the data centers that are currently being built and the power required, I think a lot of our clients are under-allocating to infrastructure, especially digital infrastructure.”
As for other investments, U.S. family offices held an average of 9% in cash, an all-time high, and 10% in bonds.
Surprisingly, research shows that fewer than half of family offices set overall investment return goals. In the United States, only 49% of family offices set long-term target returns for their portfolios. The median return target for companies with target returns was 8%.
Still, family offices use a variety of benchmarks in their investment portfolios, with more than three-quarters of companies surveyed using some kind of benchmark to assess performance. Research shows that large family offices are more likely to use customized benchmarks.
An increasing number of family offices, particularly those smaller than $500 million, are considering outsourcing more functions to reduce costs. According to the report, 80% currently use external advisors primarily for investment management, manager access, trade execution and portfolio construction.
Family offices are also increasingly turning to companies like JPMorgan for cybersecurity support to protect them from hacking. 40% of family offices surveyed said cybersecurity was the biggest “gap” in their company’s capabilities, and nearly one in four said they had been the victim of a cyberattack. did.
“They’re asking us for help,” Sinclair said.
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