Inflation remains a top concern, prompting family offices to seek assets that benefit from it.
Market volatility leads to a cautious approach, with many waiting for lower valuations before taking risks.
Private equity investments are the preferred choice, with many seeking direct investment opportunities.
In the wake of the tumultuous events of 2022, including market downturns, global conflicts, and the ongoing impact of the pandemic, family offices are revaluating their investment strategies. A recent Dentons Family Office survey of 188 principals and executives across 32 countries sheds light on the investment priorities and concerns for these ultra-high-net-worth clients in 2023.
Market Volatility Encourages Caution
The market turbulence of 2022 has prompted 70% of family offices to adopt a cautious approach, waiting for lower valuations before adding risk to their portfolios. This mindset suggests an expectation of further volatility in 2023.
Inflation Worries Prompt Asset Purchases
A striking 68% of respondents expressed serious concerns about inflation, leading them to buy assets that can benefit from it. Larger single-family offices (SFOs) and family enterprises (FEs) with over $1 billion in assets are better equipped to weather inflation, with only 62% feeling concerned. In contrast, smaller SFOs and FEs with under $250 million in assets have a higher level of concern at 73%.
Private Equity Offers the Best Opportunities
Globally, 60% of family offices see the most lucrative investment opportunities in private equity, with North America showing an even higher percentage at 72%. Direct investments are popular, with 63% making such investments and 22% expressing interest. These family offices allocate an average of 37% of their total assets under management to private equity.
Direct Investing Brings Challenges
Family offices recognize the potential difficulties of direct investing, with 45% worrying about taking on too much operational risk. Lengthy due diligence, specialist knowledge, inconsistent and manual operations all contribute to direct investing being one of the most challenging areas of alternatives.
Diversification Through Investment Factors
Diversification remains a top priority, with 85% of respondents utilizing factors like size, quality, or value of companies’ equity for risk-spreading. Geographic variation is another popular strategy, employed by 74% of respondents.
Family Members Prefer Hands-On Investment Decisions
A mere 8% of family offices leave investment decisions entirely to their staff, while 30% collaborate closely between family members and staff. Only 29% of ultra-high-net-worth family offices have key family members making investment decisions independently.
Mixed Views on Cryptocurrencies and Digital Assets
After 2022’s crypto market crash, family offices have divided opinions on digital assets. While 47% have no plans to invest in cryptocurrencies, 23% currently do, and 30% are considering it or adopting a wait-and-see approach.
External Partners Remain Essential for Family Offices
Despite 80% of family offices boasting in-house investment capabilities, they continue to rely on external partners for a variety of services. A significant 77% outsource legal services, and 62% seek external support for accounting and tax compliance. Interestingly, 68% of North American family offices maintain in-house philanthropic capabilities, highlighting the value they place on charitable endeavors.
Large family offices managing over $1 billion in assets lean more heavily on internal staff, with 95% handling direct investments in-house. However, even within this group, 40% still partially or fully depend on external vendors for information technology and cybersecurity support.
When choosing external partners, 65% of respondents prioritize deep expertise in a specialized area. Trust also plays a crucial role, with 39% valuing recommendations from trusted contacts and a partner’s experience working with family offices. Strategic advice is important to 34% of family offices, while 32% emphasize alignment with their office’s culture and values. Fee reasonability is a priority for 31% of respondents, with smaller offices being even more cost-conscious – 52% consider fees an important factor when selecting partners.