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Family offices now have more money invested in private markets than in the public stock market, even as the market recovers, according to a new survey.
A survey of North American family offices conducted by Campden Wealth and RBC found that family offices invested 29.2% of their investments in private markets, which include private equity, venture capital and private debt, compared to 28.5% in publicly traded stocks.
It’s the first time in the survey that family offices have invested more in private markets than public stocks. Their equity allocation is down from 31% last year, while their private investments are up from 27%. The remaining assets were invested in cash, bonds, alternatives, hedge funds, commodities, real estate and other investments.
“Family offices have consistently increased their allocations to private markets,” the study says.
And they plan to focus even more on private markets in the coming months, according to the survey, which found 41% of family offices plan to increase their allocations to private equity funds and a third plan to to put more money into direct private equity fund offers.
According to the survey, only 23% planned to increase their public holdings in developed markets, while 15% planned to reduce their holdings.
The findings underscore a profound shift in the investment practices of family offices, the private investment arms of families with assets typically of $100 million or more, even despite a recent stock rally. The S&P 500 is up 19% so far this year.
Over the last decade, and especially after the pandemic, family offices have moved into private equity and so-called direct deals, in which they acquire shares in private companies on their own initiative. Family offices say private markets offer better long-term returns without the volatility of stocks.
Many family office founders, usually entrepreneurs who made their fortunes starting and selling private companies, also like to use their experience by finding companies in their field and offering advice in addition to capital.
It is unclear whether the bet will continue to pay off. Private equity funds are struggling with tight funding and expensive loans, as well as a lack of exits due to the IPO drought.
Meanwhile, with investors anticipating interest rate cuts in 2024, stocks could continue their rally.
When asked which asset class will give them the best returns in the coming years, family offices ranked “private equity and venture capital” first, followed by public equities.
“Despite family offices’ cautious approach in response to the downturn in financial markets (2022), their perspectives on the sources of the best long-term returns remain steadfast,” the report said. “Private equity and venture capital continue to be at the top of the list.”
In addition to private markets, family offices are also showing increasing interest in alternative assets, including real estate and commodities. When asked about their investment priorities for the coming year, the first answer was “investing in alternative asset classes.”
Nevertheless, family offices remain cautious about the coming year. Nearly 60% cited “recession risk” as the top financial risk, followed by tensions in China and “excessive Fed tightening.”
Its bond holdings, which currently make up 8% of the group’s investments, could continue to grow, with a third planning to increase their bond positions.
Family offices also have large amounts of cash waiting for the right opportunity. They hold 9% of their assets in cash, almost twice as much as in 2021.
“They have a lot of cash on the table,” said Angie O’Leary, head of wealth planning at RBC Wealth Management, USA. “They can use that money for things like real estate or an acquisition or investing in private markets.” “We’re not in a hurry, they’re just looking for this great opportunity.”
The survey covered 330 single family offices and private multi-family offices around the world, including 144 in North America. The family offices surveyed, including private companies, had total assets of an average of $1.3 billion.
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