A recent report by BNY Mellon Wealth Management, entitled "Enhancing Family Wealth", reveals the investment trends and priorities of family offices. The report, based on a survey of 189 decision-makers in single family offices, shows significant changes in the asset allocation, ambitions and concerns of these sophisticated financial entities.
The 2020s are characterised by rapid change, making decision-making more complex for professional investors. Family offices, often at the forefront of new trends, play a crucial role as a barometer of changing investment practices. The BNY Mellon report highlights the growing importance of direct investments, digital assets and artificial intelligence (AI).
Over 60% of family office portfolios are allocated to three major asset classes: private equity (funds, direct and venture capital), public equities and real estate. This diversification reflects their expertise in mixing traditional and alternative categories. Cryptocurrencies now account for 5% of portfolios, an allocation unthinkable ten years ago.
Family offices are adopting a strategic asset allocation aligned with long-term investment objectives. The popularity of AI-related technology stocks and the continued resilience of the US consumer have strengthened public markets. However, macroeconomic uncertainty is driving a preference for liquid investments.
Cryptocurrencies account for 5% of total asset allocation. They form part of alternative investments, alongside private equity, private credit and hedge funds.
Direct investments, involving negotiations with private companies, are gaining in importance. They can take the form of co-investments, where family offices invest alongside private equity funds. This approach makes it possible to capture an illiquidity premium and benefit from total control and transparency.
Nearly 80% of family offices see AI as a major investment theme for the next five years. AI, with its ability to transform businesses and generate new revenues, is seen as a generational opportunity. Family offices are already using AI to improve their investment decision-making processes.
Family offices are divided on cryptocurrencies: 33% are actively investing while 38% have no interest. Among those exploring cryptocurrencies, motivations include following new trends and the interest of current or next generation leaders.
Nearly half of family offices cite geopolitical risks as one of the top three risks to their portfolio. Cybersecurity threats are also a major concern, particularly for US professionals. Inflationary pressures also persist as a significant risk.
The majority of family offices outsource investment advisory services, including risk management and performance measurement. However, tasks such as manager selection and idea generation are often managed in-house.
Family offices are staying true to their entrepreneurial roots by embracing new opportunities in a rapidly changing environment. The BNY Mellon report highlights how these sophisticated entities navigate a complex investment landscape, continually adapting to new trends and technologies to maximise their success.
