More than half of family offices want to add even more private investments to portfolios by 2024. The most popular category is private credit. Cash, public equities and high-yield lose out.
Just over half (52 percent) of family offices worldwide plan to significantly increase their allocation to alternative investments this year, according to a global survey of 75 family office CIOs by alternative asset manager KKR. 45 percent of respondents want more exposure to private credit. The least popular are the more liquid asset classes, such as cash, public equities, and high yield.
‘More competitive’ asset class
Despite the intention to invest more in private credit, KKR notes from conversations with CIOs that some are concerned that the hype around private credit will make the asset class ‘more competitive’.
“Perhaps more importantly, many of the same CIOs still believe that Private Equity, not Private Credit, is the best way to grow capital efficiently over a longer-term horizon. Interestingly, we heard more from CIOs allocating Private Credit capital outside the US and Europe to include growth markets such as Asia,” said Henry McVey, principal researcher and head of global macro at KKR Balance Sheet.
Most CIOs acknowledged shifting their allocations within Asia from China and HongKong to India and Japan. KKR expects direct exposure to China in many family office allocations to fall to around two to five per cent, where 9 to 11 per cent was previously common.
Although some CIOs are surprised by the “sudden” interest in private credit within their peer group, many of them stress that they have been making significant allocations to this asset class for some time, said Henry McVey.
However, this does not quite seem to square with KKR’s historical findings. From previous surveys, private credit as a percentage of private credit exposure has fallen from 11 per cent in 2017 to 8 per cent in 2023.
Infrastructure
The survey shows that infrastructure is another major area of interest for CIOs. Family offices recognise that “new” infrastructure investments, such as data centres, logistics, and transport assets, often outperform traditional infrastructure such as airports and toll roads. The asset class comes second in the intention survey.
According to McVey, CIOs around the world, including CIOs of family offices, think that in addition to high returns, infrastructure offers good protection against inflation, the second most important concern for family offices worldwide after geopolitics. US family offices are an exception to the rule; they are more concerned about inflation.
Sustainability
The great division between regions can be seen in allocations to energy. Many CIOs, especially in Europe, want to increase exposure to climate and energy transition funds. Asian CIOs also reported being encouraged to align family offices with the socially responsible investment mandates of operating companies. Sustainability is clearly a big directive within these regions. Not surprisingly, they have little or no interest in traditional energy assets.
In comparison, in the US and Latin America, there was increasing interest in owning more traditional energy assets, including pipelines, LNG and natural gas production. Cheap valuations, strong cash flows and negative sentiment have made several CIOs think that the sector is washed out and ready for a bigger, more sustainable revival, as the shift to renewables will take longer than people think, McVey said.
40 per cent of those surveyed are based in the United States, while 37 per cent of family offices operate in the EMEA region. Asia and Latin America accounted for 11 per cent and 12 per cent, respectively. The average aum of the family offices surveyed was more than $3 billion, with 60 per cent of CIOs overseeing $1 billion to $5 billion in assets.
Family allocations
Further reading on Investment Officer:
- Family offices plan biggest asset allocation change in ages
- German family offices keen to reset their asset allocations
- Single family offices increasingly seek collaboration