Family Offices Smile Most On Private Assets, Prepare To Cut Cash Allocations – BNY Mellon WM

Tom Burroughes

4 June 2024

The importance of private market investments to family offices – now a commonplace observation – is reinforced in figures from BNY Mellon Wealth Management.

A study of family offices worldwide shows that their single largest allocation – 27 per cent – is to private equity, including funds and direct stakes, and venture capital. Public equity accounts for 21 per cent and real estate makes up 13 per cent. This is followed by public fixed income , cash , “real assets” , private credit , hedge funds , and crypto, at 5 per cent.

The survey was conducted among professionals at 189 family offices worldwide, with assets under management starting at $250 million and ranging to $5 billion and beyond. The large majority of respondents are in the Americas, 15 per cent are in Europe and 5 per cent are in Asia.

In a period of more than a decade, fueled by ultra-low interest rates and structural shifts in how companies are owned, family offices have pushed into non-public, relatively illiquid assets to obtain yield when public market yields were squashed. Since rates started rising about two years ago, however, there has been some cooling of enthusiasm – as with venture capital – but there remains a large industry focus on the topic.

More than half of family office investment professionals said they plan to increase exposure to public equity in the coming year, making it the most popular choice for future allocations. Only 14 per cent plan to decrease exposure.

Real estate, private equity and private credit make up the next three most popular areas for increasing exposure during this time. Some 22 per cent of respondents plan to cut cash allocations; 34 per cent intend to increase allocations to public fixed income.

The study also shows that as far as direct investing – bypassing funds – is concerned, 71 per cent of respondents plan to make six or more investments over the next 12 months.

Tax-efficient strategies are popular, the report said: To invest tax-efficiently in today’s environment, 43 per cent of family offices report using tax managed equity . For investment professionals who have examined TME but opted not to use it, the most cited drawback is that it is perceived as too complex .

Risks
Risks are evolving for family offices: Almost half of family offices cite geopolitics as one of the three greatest risks to their portfolio, with the largest family offices especially concerned about this. Inflation and insufficient cybersecurity are also considered significant threats.

Such findings also demonstrate how the activities, concerns and views of family offices, once a relatively obscure part of the financial landscape, are increasingly surveyed and commented upon. Citigroup and UBS, to give just two examples , have commented in new studies.

What’s on the mind?
Among the multiple competing objectives family offices are juggling, a third cite expanding investment offerings as top of mind, followed by tax planning and succession, with 14 per cent saying that involving the next generation is their top objective.

As for cryptos, family offices are strikingly split on crypto with 39 per cent of professionals saying that they are actively investing in crypto or are exploring doing so, while 40 per cent report having no current exposure or interest in crypto. Of those interested in crypto, nearly a third cite interest from the next generation of family office successors as a top motivation.

Inevitably, artificial intelligence makes an appearance in the survey. AI is now considered a dominant investment theme: Investment professionals have been quick to realize the transformational potential of this technology with nearly 80 per cent seeing AI as one of their top investment themes over the next five years.

Switching focus to costs and operational concerns, see this survey from a global multi-family office about trends in the sector.