Family offices are increasingly injecting higher levels of risk into their portfolios, mirroring the broader market confidence since late 2012, according to the latest FT Family Office survey.

Over 150 families from family offices around the world took part in the survey, which was conducted between January and February this year.

Among the findings, the report shows that since Autumn 2012, family offices have decreased their exposure to fixed income by 4.9 per cent, pushing it from first to the third most favored asset class. Equities are now family office portfolios’ largest exposure at 21.4 per cent, followed by real estate at 15.4 per cent.

"For the next 12 months family offices are set to deepen their risk-on strategies, barring a serious and unforeseen market tremor, with planned increases in their exposure to equities, emerging market equities and debt, real estate and other relatively riskier investments," the report said.

Absolute return/hedge funds fell from 15 per cent to 10.8 per cent, likely due to disappointing and volatile returns, the report said.

As traditional sources of financing continue to be squeezed, the report found that family offices are considering increasing their exposure to private equity, with nearly a third (29.5 per cent) forecasting 20-40 per cent long-term returns for the asset class.

The report revealed that whilst just over half of family offices made returns of 6-10 per cent for their clients in the past 12 months, renewed investment confidence and emergent opportunities have translated into family offices targeting more aggressive and ambitious performance objectives over the medium term.

The largest proportion (29.4 per cent) of family offices continue to target returns of 6-10 per cent, followed by 25.5 per cent targeting returns of 3-5 per cent. However, increased return expectations over the past six months have resulted in a growth in the number of family offices targeting returns of 11-15 per cent and returns in excess of 15 per cent.

"It stands to reason that in order to attain those higher medium-term performance targets, family offices will need to inject a higher dose of risk into their clients’ portfolios," the report said.

According to the report, family office asset allocation by geography has measured a very slight change over the past six months, mostly in the region of 50 basis points.

Investments in UK/Europe, US/North America and Asia Pacific dominated family portfolios, although allocations to China fell 0.7 percentage points to 3.1 per cent. Almost half of family offices plan to invest more in Asia Pacific (excluding Japan and China), while 42.6 per cent plan to increase allocations to China itself.

The number of family offices targeting capital preservation has increased by almost as much as those targeting 15 per cent returns and greater, and for 92.9 per cent of family offices, capital preservation is the most important factor driving investment decisions.

"This could be in response to either clients’ bearishness about the investment environment or a sign of family offices hedging the increase in risk assets and the more aggressive performance targets. However, it is also notable that the unattractive, in some cases negative, returns from traditionally lower-risk asset classes has driven some portfolio managers to adopt shorter-term tactical strategies, increasing exposure to higher-risk asset classes," the report said.

In conjunction with capital preservation, the volatility of investments (62.3 per cent) and portfolio concentration risk (60.3 per cent) are also highly important factors shaping family office investment decision-making.

The report also revealed that there is some indication that family offices are increasing their exposure to hedging alternatives.

Over the next 12 months, allocation to gold is expected to increase by 28 per cent, while increases to other alternatives, such as hedge funds and private equity, indicate that such allocations are not principally about investment performance, but about how it shapes the risk characteristics of the family's portfolio, the report, which was produced in association with the World Gold Council, said.