Family offices have boomed in recent years, thanks in part to the growing number of wealthy individuals. Only in the last three years has there been a surge in “extreme” wealth. In the United States, billionaires are 46% richer than they were in 2020, according to a new Oxfam report. A study by the Economist Intelligence Unit showed that the combined holdings of billionaire populations rose by more than 10% in 2019 – to $9.4 trillion – with Asia showing the highest percentage jump in the number of billionaires. The ultra-high-net-worth population fell overall in Asia last year but rose in India, while Europe and the Americas saw smaller declines, a 2023 study showed. The total net worth of Asia’s ultra-rich population was $12.13 trillion, over Europe’s $11.73 trillion, according to the report. Family offices typically serve investors with a net worth of $100 million or more. According to a 2023 study by KPMG, 26% of family offices typically manage between $251 million and $500 million in assets, while 6% manage more than $5 billion. A 2022 report citing various estimates said family offices managed more than $6 trillion in wealth. UBS told CNBC Pro that “family offices are planning the biggest tweaks to strategic asset allocation in several years,” adding that this comes “at a time when inflection points covering policy rates, inflation and economic growth seem likely.” CNBC Pro dug into recent surveys and spoke with family office operators to find out how they’re allocating now and in the years to come — in the face of big global changes. Fixed income versus equities UBS says the current trend among family offices is a return to fixed income as a differentiator, although developed market equities remain the most important asset class. “Currently, the most favored diversification strategy globally is high-quality short-duration fixed income,” the bank said, adding that family offices plan to buy more developed market bonds over the next five years. “Family offices are also increasingly turning to active strategies: both through manager selection and/or active management within asset classes and hedge funds,” he added. The table below shows how family offices plan to change their asset allocations over the next five years, according to UBS’s 2023 survey. Citi’s survey of its family offices found that while 45% planned to increase its allocations to investment-grade fixed income in the middle of last year, the situation has changed. Fixed income delivered higher returns at the time, but most family offices have started to shift toward higher-risk asset allocations, according to Hannes Hofmann, global head of Citi’s family office group. That’s also consistent with Citi overweighting equities in December for the first time since 2020 as it expects earnings growth to be broad across the board, he added. But Ocorian, which provides family office services and has $270 billion in assets under management, says that while it sees risk appetites growing, its higher-yielding, higher-risk strategies are still complemented by existing, lower-risk fixed-income investments. One type of fixed income that family offices are bullish on right now is long-dated, high-quality US investment-grade credit, he said. Robin Harris, head of Asia Pacific at Ocorian, also said there is more hedging in portfolios now than two years ago, with clients using macro trading strategies linked to geopolitical uncertainty. Issues for the coming years What kind of assets do family offices want to buy in the coming years? According to Ocorian, Japan’s reserves are an area. “The exposure to Japanese stocks in portfolios – almost no exposure 2 years ago versus now where it has become a constant feature in client portfolios,” said Harris. “The ‘Japan thesis’ is based on resurgent inflation and subsequent wage growth, which has created better purchasing power for Japanese companies. Also better corporate governance.” Japanese stocks rallied last year and have continued this year, hitting new 33-year highs. Other topics in which family offices are bullish include health care and longevity, the energy transition and genetic artificial intelligence, Citi’s Hofmann said. Overall, technology led the way as 63% of family offices said it was their preferred sector to invest in, with real estate coming in second (42%) and healthcare third at 40%, according to Citi. Technology was the most popular sector in every region except Latin America. In healthcare, family offices in EMEA (Europe, Middle East and Africa) and Asia Pacific are more bullish, citing the industry as one of the top three for investment — compared to just 26% in North America, according to Citi. UBS says that after planning to cut its real estate allocations last year, family offices – mainly those in Europe, the US and Latin America – expect to increase them again over the next five years. “One reason may be that these are the areas where nominal interest rates are relatively high and have the biggest declines. Conversely, fewer Asia-Pacific investors see themselves increasing allocations,” UBS said. Alternative assets are also becoming more popular among family offices, such as private equity, private debt and infrastructure, according to providers. “Typically, family offices also see private equity as a way to access growth investments in areas such as technology that are not accessible through the public equity markets,” UBS said. Ocorian’s Harris added: “Private equity is a lower interest rate play, given that many of the returns from this asset class are driven by the cost and availability of debt.” Markets largely expect the Federal Reserve to start cutting interest rates this year, after a prolonged period of hiking. Family offices mainly invest in private equity through funds, according to UBS. “Broadly speaking, the funds offer diversification and the ability to enter markets where the family office lacks in-house expertise,” the bank said.