Family offices, the private investment entities that serve affluent families, are displaying unprecedented optimism in the wake of shifting monetary policies. A recent survey conducted by Citi Private Bank indicates that these entities are ready to reinvest substantially into the market, particularly now that indications suggest the Federal Reserve may start easing interest rates. With a staggering 97% of family offices anticipating positive returns this year, and almost half projecting double-digit gains, the sentiment has never been more optimistic. Hannes Hofmann, head of the family office group at Citi Private Bank, highlights this transformative mindset, noting, “What we’re clearly seeing is an increase in risk appetite.”
Transitioning from two years of cautious cash accumulation and recession preparation, family offices are now poised to tap into growth opportunities across various markets. They are particularly enthusiastic about private equity investments, with nearly half (47%) planning to bolster their direct private equity stakes. This uptrend in confidence signifies a broader willingness to engage in high-valuation growth assets.
One of the most notable shifts observed is in the investment strategy focused on private equity. With the lion’s share of family offices planning to either maintain or increase their allocations in this domain, it’s evident that the appetite for riskier investments is on the rise. Only 11% of surveyed family offices intend to decrease their private equity holdings. Additionally, the survey revealed that 41% of family offices plan to expand their allocations to private equity funds, indicating a clear shift towards these asset classes as confidence in economic stability increases.
Another significant trend is the renewed interest in developed-market equities, particularly U.S. stocks. Approximately 39% of family offices are set to escalate their equity investments, while only a small fraction (9%) are looking to retract exposure to this asset class. This newfound enthusiasm follows a notable increase from 43% of family offices that raised their public equity allocations just the previous year, solidifying equities as a dominant component of their overall investment strategy.
Fixed income has also emerged as a favored asset class, especially as interest rates appear to be in a downtrend. Last year marked a pivotal moment when half of the family offices surveyed expanded their fixed-income allocations, a trend that is likely to persist. In fact, one-third of those surveyed expressed intentions to further increase their fixed-income investments in the coming year. As the S&P 500 witnesses a robust increase of nearly 20% year-to-date, family offices’ expectations for sustained strong returns into 2024 are reflected in their investment strategies as they seek stable pathways to capital appreciation.
The outlook is promising, with 43% of family offices anticipating returns exceeding 10% this year. Notably, over 10% of larger family offices—focusing on assets over $500 million—are even betting on returns exceeding 15%. Despite the optimism, there remains a cautious undertone regarding risk factors. Key concerns such as the trajectory of interest rates and deteriorating U.S.-China relations were frequently cited by survey respondents, while fears surrounding inflated market valuations emerged as an equally pressing issue.
What sets family offices apart from other groups of investors is their increasing embrace of alternative investments. Private equity, venture capital, real estate, and hedge funds currently represent 40% of the surveyed family offices’ portfolios—indicative of a sophisticated investment philosophy that prioritizes longevity and strategic asset allocation. This trend is likely to solidify as more offices venture into direct investments in private companies.
Within the realm of private investments, artificial intelligence emerges as a defining theme. Investment giants such as Jeff Bezos and Bernard Arnault demonstrate that the family offices are keen to secure stakes in AI startups. Citibank’s survey underscores AI’s prominence as the top investment theme for 2023, with over half of family offices already making investments into this high-potential sector through various forms of equity. This strategic pivot emphasizes a clear departure from past innovations like cryptocurrency, which generated more speculative interest without substantial long-term investment confidence. A mere 17% of family offices reported any engagement with digital assets, contrasting sharply with the robust support for AI initiatives.
The findings of the Citi Private Bank survey delineate a sharp transformation in the investment strategies of family offices. The newfound optimism signifies a broader willingness to engage with risk, illustrating a shift from conservative cash-hoarding tactics to proactive investment in growth-driven sectors. With private equity and artificial intelligence leading the charge, family offices are poised to redefine their financial playbooks in this promising economic landscape, establishing themselves as proactive capital allocators ready to capitalize on emerging market trends.