Family offices are planning to allocate more money to alternative investments in 2024, according to a report from leading global investment firm KKR.
Private credit, infrastructure and private equity are being prioritised as family offices move away from public markets and cash, the ‘Loud and Clear‘ survey found.
On average, family offices allocated 52 per cent of their portfolios to alternatives in 2023, up from 42 per cent in 2022. In contrast, cash holdings fell from 11 per cent to nine per cent from 2022 to 2023. Holdings of publicly traded stocks dropped from 32 per cent to 29 per cent.
While private equity allocations fell from 22 per cent in 2020 to 19 per cent in 2023, many investors are starting to go against this trend, with a net 25 per cent of respondents planning to increase their allocation to private equity in 2024.
The survey of more than 75 Chief Investment Officers (CIOs) around the world, who on average manage more than $3 billion in assets, found investors were going ‘on the offence’ and investing behind key themes such as supply chain disruption, industrial automation and artificial intelligence.
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One CIO told KKR: ‘Now is an interesting time to play offence, given that many others need liquidity, and we don’t. We are particularly keen on going direct, for example, in sectors where we have owned businesses in the past.’
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Family offices are more able to make long-term investments as active owners of businesses, and alternatives, with their long-term returns, are well suited to building wealth for future generations. Ninety-three per cent of survey respondents cited growing assets for future generations as a focus for their portfolios.
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‘CIOs we surveyed are almost all longer-term focused, and committed to harnessing the illiquidity premium as well as being positioned to lean into dislocations,’ the report said.
CIOs are going against the grain to find value-based private market opportunities, and are increasingly eyeing the oil and gas and industrial sectors, while many are looking to find investment ideas that withstand increasing geopolitical tensions.
The survey found pronounced regional differences in asset allocation, with US family offices allocating less to traditional private equity compared to counterparts in Latin America, Asia and Europe.
Henry McVey, CIO of KKR’s balance sheet and head of global macro and asset allocation (GMAA), said the survey showed this segment of the market was changing ‘for the better’.
‘These investors are diversifying across asset classes, and as they mature, they are getting better at harnessing the value of the illiquidity premium to compound capital. They are also using better hedging techniques and increasing both their desire and ability to lean into dislocations, strengths that we believe will position them to be at the winner’s table at the end of this cycle.’
