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.
Family offices are the most bullish in recent years, with their cash working in stocks and alternatives as the Fed begins to cut interest rates, according to a new survey.
Almost all family offices, 97%, expect positive returns this year and nearly half expect double-digit profits, according to Citi Private Bank’s 2024 Global Family Office Survey.
“This is the most optimistic outlook we’ve seen,” said Hannes Hofmann, head of the family offices group at Citi Private Bank, which has been conducting the survey for five years. “What we’re clearly seeing is an increase in risk appetite.”
The survey is the latest sign that family offices – the private investment arms of wealthy families – are emerging from two years of cash hoarding and recession-proofing to start making more aggressive bets on market growth and valuations.
They particularly like private equity. Almost half, 47%, of family offices surveyed say they plan to increase their allocation to direct private equity in the next 12 months, the largest share of any investment category. Only 11% plan to reduce their PE holdings. Private equity came in second, with 41% planning to increase their allocation.
With interest rates falling, family offices are also regaining their appetite for equities. More than a third, 39% of family offices plan to increase their allocation to developed market equities, mainly the US, while only 9% plan to reduce their exposure to equities. This comes after 43% of family offices increased their exposure to public stocks last year.
Public stocks remain their largest holding by core asset class, with stocks making up 28% of their typical portfolio — up from 22% last year, the survey found.
“Family offices take money from cash and have put money into public equity, private equity, direct investment and also fixed income,” Hoffman said. “But it’s primarily a risk investment. This is a very important development.”
Fixed income has become another family office favorite as rates begin to decline. Half of the family offices surveyed added to their fixed income exposure last year—the most of any category—and a third plan to add even more to their fixed income holdings this year.
With the S&P 500 up nearly 20% so far this year, family offices are looking to end 2024 with strong returns. Almost half, 43%, expect returns of more than 10% this year. More than 1 in 10 large family offices – those with more than $500 million in assets – have returns of more than 15% this year.
There are, of course, risks in their optimism. When asked about their near-term concerns about the economy and financial markets, more than half cited the path of interest rates. Relations between the US and China are ranked as their second biggest concern and market overvaluation in third place. The survey marked the first time since 2021 that inflation was not a top concern for family offices surveyed, according to Citi.
One of the big differences that sets family offices apart from other individual investors is their appetite for alternatives. Private equity, venture capital, real estate and hedge funds now account for 40% of the portfolios of the family offices surveyed. This number is likely to continue to grow, especially as more family offices make direct investments in private companies.
“It’s an important allocation that shows that family offices are asset allocators that are long-term investors, highly sophisticated and take a long-term view,” Hoffman said.
One of the biggest themes for their private investments is artificial intelligence. The family offices of Jeff Bezos and Bernard Arnault have made investments in AI startups, and repeated surveys show that AI is the No. 1 investment topic for family offices this year. More than half of family offices surveyed by Citi have AI exposure in their portfolios through public equity, private equity or direct private equity. Another 26% of family offices are considering adding to their AI investments.
Hoffman said AI has already proven to be different from previous investment innovations such as crypto, environmental, social and governance, or ESG. Only 17% of family offices are invested in digital assets, while the vast majority say they are not interested.
“Artificial intelligence is a topic that people are interested in and are putting real money into,” Hoffman said. “With crypto, people were interested in it, but at best, they put some money to play. With ESG, we find that a lot of people say they are interested in it, but a much smaller percentage of family offices are actually putting money in it ».
