Nearly half of large family offices’ investments are in private markets and options as they exit the stock market in search of higher returns and lower volatility, according to a new study.
According to the JPMorgan Private Bank Global Family Office Report released on Monday, family offices hold 46% of their total portfolio in alternative investments, which includes private equity, real estate, venture capital, hedge funds and private credit. 26% of the assets of family offices surveyed were invested in publicly traded stocks.
The study surveyed 190 single family offices from around the world, which had an average of $1.4 billion in assets.
The study found that larger family offices in the US are even more focused on alternatives. According to the survey, of US family offices with assets of more than $500 million, more than 49% invested in alternatives, with 22% invested in public stocks.
Of the alternative investments reported in the survey, 19% of family office holdings were in private equity, 14% in real estate, 5% in venture capital, 5% in hedge funds and 4% in private credit.
The move from public to private markets represents a major shift in family offices, which are the private investment arms of wealthy families, whose size and number have greatly increased in recent years. With family offices now holding more than $6 trillion in assets, they are becoming a powerful force in the private equity markets, direct deals, venture capital and private debt.
William Sinclair, head of the US family office practice at JPMorgan Private Bank, said that while stocks and bonds remain important for family offices, they are increasingly turning to alternatives for higher returns.
Family offices typically have a long investment horizon for the next 50 to 100 years or more, so they can hold assets for decades and benefit from the so-called “liquidity premium” of higher returns for more patient capital. Unlike stocks, which can fluctuate wildly from day-to-day or even hour-to-hour, options like private equity and private companies have more gradual valuation changes, reducing volatility.
“These clients are taking a multi-decade view of their assets and they can take liquidity into account,” Sinclair said. “Many of them are looking at opportunities outside the public markets.”
The report also notes that many family office founders started out as entrepreneurs themselves and sold their businesses. Those founders now want to use their family offices to take ownership stakes in other private companies and use their experience to help the companies grow.
,[JPMorgan] “I am very fortunate to work with 60% of the billionaires in this country,” Sinclair said. So there are companies that want our clients on their boards and their cap tables with some of the largest venture capital and private equity firms out there.”
Sinclair said he thinks family office investments in alternatives will continue to grow.
“In particular, I think you’ll see an increase in private debt,” he said. “And I think many customers are underallocated to infrastructure and especially digital infrastructure when you think about some of these data centers that are being built right now and the power they require. “
On their other investments, US family offices held an average of 9% in cash, which is historically high, and 10% in bonds.
Surprisingly, less than half of family offices have an overall investment return target, according to the survey. In the US, only 49% of family offices have a long-term target return for their portfolio. Among those with a target return, the average return target was 8%.
Nevertheless, family offices use a variety of benchmarks for their investment portfolios, with more than three-quarters of those surveyed using some benchmark to evaluate performance. According to the survey, larger family offices are more likely to use customized benchmarks.
Increasingly, family offices are looking to outsource more functions to reduce costs, especially smaller family offices under $500 million. The report said 80% now use external advisors, primarily for investment management, access to managers, trade execution and portfolio construction.
Family offices are also increasingly turning to firms like JPMorgan for help with cybersecurity to protect against hacking. 40% of family offices surveyed said cybersecurity is the biggest “gap” in their capabilities and nearly 1 in 4 said they have been the victim of a cyberattack.
“They’re looking to us for help,” Sinclair said.
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