Family offices—private investment entities for the ultra-wealthy—are signaling a notable shift in their investment strategies following a prolonged period marked by financial caution. The latest findings from Citi Private Bank’s Global Family Office Survey suggest that these entities are gradually abandoning their cash hoards in favor of a more aggressive investment posture. A striking 97% of family offices anticipate positive returns this year, with nearly half projecting double-digit growth. In this article, we’ll sift through the survey results and analyze what they reveal about the changing landscape of wealth management and investment strategies among these affluent families.
Increased Risk Appetite: The Pursuit of Growth
The survey conveys a budding confidence among family offices, signaling a marked increase in their willingness to embrace risk. “This is the most optimistic outlook we’ve seen,” Hannes Hofmann, head of the family office group at Citi Private Bank, remarked. After two years of holding back and preparing for economic uncertainty, many family offices are now looking to profitable avenues, especially within private equity. An emphatic 47% indicated plans to boost their direct private equity allocations in the coming year—illustrating the strongest inclination towards this investment category observed in years.
This enthusiastic pivot is not limited to private equity alone, as family offices also show an eagerness to allocate funds towards public equities, particularly in developed markets. A significant 39% signaled potential increases in their U.S. stock investments, pivoting from a previous sentiment that leaned heavily towards conservatism. This mindset marks a promising trend, suggesting that family offices are looking to capitalize on favorable market valuations and potentially enhanced returns as interest rates begin to recede.
While the bullish sentiment shines through in equities and alternatives, fixed income is also receiving renewed attention. Following a year in which half of the family offices surveyed increased their fixed-income exposure, 33% plan to amplify their bond investments further in the near future. This move towards fixed income reflects a balanced approach to capital management, ensuring that even in pursuit of aggressive growth, family offices maintain a safety net for their investments.
Moreover, the growing appetite for diversification is evident across different asset categories. Public equities continue to dominate as the largest holding within family office portfolios, comprising 28% of assets—up from 22% the previous year. This diversification is representative not only of a desire for growth but also of a strategic approach considering market volatility, thus creating a more resilient investment portfolio.
Despite the prevailing optimism among family offices, underlying concerns remain. The survey highlighted several prominent worries among investors, with interest rate fluctuations topping the list. Additionally, tensions in the U.S.-China relationship and perceived market overvaluation were also noted as significant external factors that could hamper financial growth.
Interestingly, for the first time since 2021, inflation ceased to be the primary concern for these investors. This shift indicates a possible change in perception towards macroeconomic factors, as family offices appear increasingly focused on strategic investment choices rather than reactive measures tied directly to inflation.
A distinct trait that differentiates family offices from other wealth management entities is their preference for alternative investments. According to the survey, nearly 40% of their portfolios are allocated to private equity, venture capital, real estate, and hedge funds. This proclivity towards alternative investments highlights the sophisticated and long-term nature of their investment strategies.
Artificial intelligence (AI) has emerged as a particularly attractive sector, capturing significant interest from family offices. Companies controlled by notable figures such as Jeff Bezos and Bernard Arnault have already made notable investments in AI startups. Reflecting on this trend, Hofmann noted that over half of family offices have incorporated AI investments into their portfolios, with an additional 26% contemplating new exposures to this thematic investment area.
Overall, the findings from Citi Private Bank’s survey reflect a seismic shift in the attitudes of family offices towards investment. With a clear trend towards embracing risk and a focus on sustainable growth, family offices are no longer merely surviving in a volatile economic climate. Instead, they are evolving, seeking opportunities in an ever-changing financial landscape. As they reposition themselves for the future, their adaptability and foresight position them favorably in a dynamic world where innovation and strategic foresight reign supreme.