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A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide to the high-net-worth investor and consumer. Sign up to receive future releases straight to your inbox.
While many institutional investors are cutting back on alternative investments such as hedge funds and private equity, family offices are pouring even more money into the sector, according to a new study.
KKR’s family office survey of 75 chief investment officers worldwide found that family offices invested 52% of their portfolios in alternative investments in 2023, up from 42% in 2022. The rise in alternatives is coming at the expense of almost everything else asset class, as their cash holdings fell from 11% to 9% from 2022 to 2023, and their holdings in publicly traded stocks fell from 32% to 29%.
“At a time when other allocators are withdrawing from private allocations, this group’s intentions are to increase exposure to private market investments again in 2024 to further benefit from the illiquidity premium,” the research said.
The moves are part of a broad shift for family offices, the private investment vehicles for wealthy families, as they move away from public markets to private and alternative solutions – from real estate and private equity to direct stakes or ownership in private companies. Since family offices have a longer time horizon than other investors, preferring assets that will grow over multiple generations, they can invest in private companies and alternatives that pay a premium for more patient capital.
Family offices also have a particular advantage in the current market as banks and more traditional lenders pull back on loans to companies. Many large institutional investors are shunning private equity, venture capital and other asset classes that have suffered from a lack of initial public offerings and buyouts.
“Now is an interesting time to play aggressively, given that many others need liquidity, and we don’t,” a CIO told KKR, according to the report. “We are particularly keen to move directly, for example, into areas where we have had business in the past.”
Family offices plan to continue shifting funds from cash and stocks to alternatives this year, according to the survey. 42% plan to shrink their cash and 31% plan to cut their stocks. Their favorite alternatives include private credit (with 45% planning to add to their holdings), followed by infrastructure (31%), private equity (28%) and commodities (18%).
Many also plan to put more of their money into real estate, albeit only in specific areas. The report said family offices are focusing on data centers, logistics and warehouses “capturing the important post-pandemic investment themes”.
Another area family offices like at the moment: oil and gas, both in private and public markets.
“Forced selling by other investors exiting the sector creates tremendous opportunities,” the research said.
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