Interview, Panel, Conference Presentation
Where Are Family Offices Seeking Higher Returns?
- Family offices are projected to expand their influence on Wall Street by evolving toward a hybrid structure that combines the operational rigor of funds or endowments with a unique focus on family mission, while leveraging lean investment teams—where 50% have fewer than five professionals—to maintain nimble decision-making capabilities.
- Strategic positioning includes targeting long-term capital appreciation, with 80% of families prioritizing growth opportunities and a multi-generational horizon, alongside an expectation to remain a preferred partner for capital raisers due to flexible constraints on deal size and geography, with over 90% continuing to invest in venture capital and record flows observed in the first half of 2021.
- Portfolio allocations are expected to shift toward alternatives, which currently represent 45% of assets, and public equities driven by a 12-year streak of superb cumulative returns, while families may reduce incremental real estate exposure due to current valuations.
- To hedge against anticipated inflation and currency debasement, approximately half of family offices are expected to increase holdings in hard assets such as real estate, precious metals, and art, while nearly half plan to initiate exposure to cryptocurrencies like Bitcoin and Ether as store-of-value assets, despite concerns regarding long-term value proof.
- Specific interest in digital assets is also directed toward the broader ecosystem, including early-stage software and infrastructure companies, as families seek to invest in distributed ledger technology innovation.
- Investment strategies are adapting to a potentially prolonged low-interest rate environment by increasing allocations to non-tier one real estate markets, niche sectors, and areas with demographic shifts, while 50% of offices considering inflation are targeting hard assets.
- Environmental, Social, and Governance (ESG) initiatives are forecast to accelerate in alignment with next-generation involvement and global regulatory commitments, including the U.S. target to halve emissions by 2030, the EU's 2050 net-zero goal, and China's 2060 carbon neutrality pledge.
- Within ESG sectors, families are expected to focus on clean energy, agriculture, and food, driven by the convergence of mission goals and the expectation that these areas will provide outsized returns based on return profiles.
- Future operational trends include creating processes for the next generation and accelerating dedicated resources for due diligence in alternative investments, with the investing community potentially mimicking family offices' volatility-era asset acquisition strategies observed in March 2020.