A new study has revealed that large family offices are moving away from traditional stock market investments in favor of alternative asset classes such as private equity, real estate, venture capital, hedge funds, and private credit. According to the JPMorgan Private Bank Global Family Office Report, family offices now have nearly half (46%) of their total portfolio allocated to alternative investments. This shift in investment strategy is driven by a desire for higher returns and lower volatility, as family offices seek to capitalize on long-term investment opportunities.
The study found that American family offices, particularly those with assets exceeding $500 million, are even more concentrated in alternative investments. These family offices have over 49% of their portfolio invested in alternatives, with only 22% allocated to publicly traded stocks. The United States has seen a significant rise in the number and size of family offices in recent years, with these private investment arms becoming major players in the alternative investment space.
One of the key reasons behind the shift towards alternative investments is the longer time horizon typically adopted by family offices. These investment vehicles are known for investing with a multi-decade view, often planning for the next 50 to 100 years or more. By holding assets for extended periods, family offices can benefit from the “liquidity premium” associated with patient capital. Unlike the stock market, where volatility can be high, alternative investments such as private equity offer more stable valuation changes over time.
Many family office founders have entrepreneurial backgrounds, having built and sold businesses in the past. These founders now leverage their experience to take ownership stakes in other private companies, applying their industry knowledge to help these companies grow. By partnering with established venture capital and private equity firms, family offices can add significant value to their investment portfolios. This collaborative approach allows family offices to diversify their holdings while supporting the growth of promising startups.
Looking ahead, experts predict that family offices will continue to increase their allocation to alternative asset classes, with a particular focus on private credit. Additionally, there is a growing interest in infrastructure investments, especially in digital infrastructure such as data centers. Family offices are exploring new opportunities outside of traditional public markets, looking for innovative ways to generate higher returns while managing risk effectively.
In response to evolving market conditions, family offices are seeking to outsource various functions to reduce costs and improve efficiency. External advisors are increasingly being used for investment management, access to managers, trade execution, and portfolio construction. Additionally, family offices are prioritizing cybersecurity measures to protect their assets against potential cyber threats. With a significant number of family offices citing cybersecurity as a top concern, firms like JPMorgan are being called upon to provide expertise in safeguarding sensitive financial information.
The trend of family offices investing in alternatives represents a fundamental shift in the way wealthy families manage their wealth. By diversifying their portfolios and embracing long-term investment strategies, family offices are better positioned to navigate market volatility and capitalize on emerging opportunities. With a continued focus on alternative investments and strategic partnerships, family offices are poised to play a significant role in shaping the future of the private investment landscape.