Family offices worldwide, representing a combined net worth of $565 billion, are increasingly allocating their investments towards fixed income and private equities, according to a recent study conducted by Citigroup (NYSE:C). This trend marks the most significant shift in investment strategy since the inception of the study in 2020.
More than half of the 268 family offices surveyed increased their allocations in fixed income, while 38% boosted their private equity holdings. Conversely, 38% reduced their allocation in stocks. Investors demonstrated a particular interest in private equity investments during the first half of the year as the initial public offerings (IPOs) market remained sluggish.
The survey revealed that these ultra-high net worth investors are now more conservative with their private equity investments than in previous years.
Direct investments in private markets, particularly in technology, real estate, and healthcare sectors, were favored due to attractive valuations. These direct deals typically involve buying directly into a company or asset rather than investing through a fund or other intermediary.
The average portfolio allocations among the family offices surveyed included 22% each in public and private equities respectively, 16% in fixed income, and 12% in cash. Two-thirds of the respondents were based outside the U.S.
Inflation, rising interest rates, and geopolitical tensions arising from U.S.-China relations were identified as major concerns among respondents. "With inflation, market volatility and geopolitical concerns top of mind amongst ultra-high net worth investors and their families, they are readily diversifying their portfolios and considering direct and sustainable investments," Ida Liu, global head of Citi’s Private Bank, said in a statement.
Family offices, serving as money managers for the ultra-wealthy, are well-positioned to take advantage of market volatility due to large capital bases and small teams that allow them to seize opportunities quickly. The survey also found that family offices mostly relied on their internal teams and their peers to source deals, with most firms usually allocating between $1 million and $5 million per deal on average.
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