Family offices have upped their allocations to alternatives in recent years, with an average 52% of assets now allocated to the asset class up 200 basis points since 2020, and they will continue to do so in 2024, according to a report by global private investment firm KKR.
Additional allocations to private credit, infrastructure and private equity will be at the expense of public equities and cash.
Based on a proprietary survey of more than 75 Chief Investment Officers (CIOs) who oversee over $3bn in AUM, on average, the report – “Loud and Clear,” written by Henry McVey, CIO of KKR’s Balance Sheet and Head of Global Macro and Asset Allocation (GMAA) – examines how family office CIOs are leveraging their longer-term focus and owner/operator mentality to create a sustainable competitive advantage.
According to the report, within alternatives, there is meaningful diversification including a significant jump in allocations to real assets.
Cash positions meanwhile are still high at 9%, which McVey says confirms KKR’s thesis that many investors are under-risked for today’s markets.
“We hear the message ‘loud and clear’ that this segment of the market is changing – and for the better,” said McVey. “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.”
The report also reveals a “notable bifurcation” in the asset allocation approaches between family offices set up within the last five years and those that had already scaled before Covid, with more seasoned family offices typically holding less cash and allocating more to private equity.
There are also pronounced regional differences in asset allocation, with US family offices allocating less to traditional private equity compared to their counterparts in Latin America, Asia and Europe, while Asia-based family offices have relatively heavy allocations to real estate.
Geopolitics, meanwhile, is eclipsing inflation as the main concern for CIOs, according to the survey, with more than 40% of respondents identifying geopolitics as the single most important risk today.
