Recent data suggests that family offices, the specialized investment entities serving affluent families, are cultivating a newfound optimism after a prolonged period of uncertainty. According to Citi Private Bank’s 2024 Global Family Office Survey, a staggering 97% of family offices anticipate favorable market conditions this year, with almost half projecting double-digit returns. This reinvigorated outlook is remarkably notable, considering the conservative strategies adopted over the previous two years due to prevailing economic anxieties and fears of a recession. Hannes Hofmann, head of the family office division at Citi Private Bank, emphasized this transition by stating, “What we’re clearly seeing is an increase in risk appetite.” This statement underscores a broader trend where family wealth managers are pivoting from cash preservation back to more aggressive investment strategies.
Among the various investment categories being explored, private equity has captured the most attention from family offices. The survey notes that 47% of these entities intend to increase their direct investments in private equity over the next year—the most significant inclination toward any investment type. Furthermore, 41% of the offices indicated plans to boost their commitments to private equity funds. This shift indicates a critical transformation in investment strategy as wealth managers recommit to areas that promise substantial growth over traditional equities and fixed income.
Family offices have historically demonstrated an inclination for alternative investments, with private equity, venture capital, real estate, and hedge funds collectively constituting about 40% of their current portfolios. This figure is expected to rise, reflecting a robust belief in the potential of alternative assets to outperform standard market offerings in volatile conditions.
Reevaluating Stock Allocations
The cautious approach taken in the realm of public equities is dissipating, largely due to anticipated interest rate cuts by the Federal Reserve. More than one-third of family offices are ready to increase their exposure to developed-market equities, particularly in the United States. This follows a trend where 43% of family offices augmented their stock portfolios the previous year. Public equities now dominate the typical portfolio of family offices, accounting for 28%—a substantial increase from 22% the prior year. With the S&P 500 reflecting near-20% growth year-to-date, it appears family offices are regaining trust in the recovery of stock markets.
Hofmann pointed out this crucial shift, stating that family offices have moved away from liquidity-driven strategies, reallocating funds into riskier but potentially more rewarding sectors such as equities and private investments. He noted, “That is a very significant development,” highlighting that wealthy investors are aligning their strategies with optimistic market forecasts.
As interest rates decline, the fixed-income sector is also appealing to family offices. Approximately 50% increased their fixed-income holdings last year—the highest of any category—and one-third plans to continue this trend in the ongoing year. This reflects a careful balancing act where riskier assets are pursued, but foundational investments like bonds continue to serve as safety nets amid economic uncertainties.
Despite favorable projections, family offices remain vigilant regarding potential pitfalls. When inquired about immediate concerns, over half of the respondents identified the trajectory of interest rates as a significant worry. Relations between the U.S. and China emerged as the second most pressing issue, followed closely by concerns over market overvaluation. Interestingly, inflation—which has been a primary concern for some time—was noted less frequently this year compared to previous surveys, suggesting a potential shift in investor priorities.
Artificial intelligence (AI) has emerged as the dominant theme for family office investments, with industry giants like Jeff Bezos and Bernard Arnault investing heavily in AI startups. Over half of the surveyed family offices report having allocations in AI through various means, including public equities and direct investments. A notable 26% are contemplating further investments in this burgeoning sector. Hofmann distinguishes AI from past investment trends like cryptocurrencies and ESG, asserting that family offices are seriously engaging with AI, in contrast to more speculative approaches observed in the cryptocurrency space.
In essence, while liquor markets once posed a threat to family office strategies, the pendulum has begun to swing towards optimistic investment opportunities. As family offices grow more assertive and diversify their holdings—especially in private equity and AI—they continue to redefine their approaches in an evolving economic landscape. This evolution reflects a long-term strategic focus that might very well secure their wealth for generations to come.