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A version of this article first appeared in CNBC's Inside Wealth newsletter with Robert Frank, a weekly guide for high-net-worth investors and consumers. Register to receive future issues, directly to your inbox.
While many institutional investors are cutting back on their alternative investments, such as hedge funds and private equity, family offices are pouring even more money into the sector, according to a new study.
KKR's family office survey of 75 investment directors around the world found that family offices had 52% of their portfolios invested in alternative investments in 2023, up from 42% in 2022. Growth in alternatives comes as expense of almost all other assets. class, as its cash holdings fell from 11% to 9% from 2022 to 2023, and its publicly traded stock holdings fell from 32% to 29%.
“At a time when other allocators are withdrawing from private allocations, this group's intention is to increase exposure to private market investments again in 2024 to further take advantage of the illiquidity premium,” according to the survey.
The moves are part of a broad shift for family offices, the private investment vehicles for wealthy families, as they move away from public markets toward private and alternative ones, from real estate and private equity to direct stakes or ownership in private businesses. Because family offices have longer time horizons than other investors and prefer assets that will grow over multiple generations, they can invest in private businesses and alternatives that pay a premium for more patient capital.
Family offices also have a special advantage in the current market, as banks and more traditional lenders are withdrawing loans to companies. Many large institutional investors are avoiding private equity, venture capital and other asset classes that have suffered from a lack of acquisitions and initial public offerings.
“Now is an interesting time to play offense, given that many others need liquidity and we don't,” one CIO told KKR, according to the report. “We are especially interested in acting directly, for example in sectors where we have had companies in the past.”
According to the survey, family offices plan to continue shifting capital from cash and stock to alternatives this year. 42% plan to reduce their cash holdings and 31% plan to cut stocks. Their favorite alternatives include private credit (with 45% planning to increase their holdings), followed by infrastructure (31%), private equity (28%) and commodities (18%).
Many also plan to invest more money in real estate, although only in specific sectors. The report says family offices are focusing on data centers, logistics and warehouses “capturing important post-pandemic investment themes.”
Another sector that family offices like at the moment: oil and gas, both in the private and public markets.
“Fire selling by other investors leaving the sector is creating huge opportunities,” according to the survey.
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