AlternativesJanuary 17, 2020

Family Offices Slash Allocation to Alternatives by More than Half

Survey finds family offices allocated the most to equities in 2019.

Reported by Michael Katz

Family offices slashed their holdings in alternative investments by more than half in 2019 while increasing their allocations to equities and fixed income, according to a recent survey from research firm Peltz International.

The survey of 26 family offices found that they allocated 30% of their investments to equities–developed, followed by alternatives (25%), fixed income-developed (14%), fixed income-developing (7%), cash and cash equivalents (7%), and equity-developing (5%). The remainder consisted of “other” such as real estate.

In last year’s survey, Peltz found that alternative investments made up more than 52% of family office portfolios, while equities made up 22% of their portfolios, and fixed income accounted for 15% of their investments.

“In the alternatives space, real estate-direct, REITs and private equity-direct experienced increased allocations between 2018 and 2019,” Lois Peltz, president of Peltz International and author of the report, said in a statement. “However, hedge funds suffered a drop from 28% in 2018 to 22.4% in 2019. Private equity funds also saw a dip from 20% in 2018 to 19.1% in 2019.”

Among alternative investments, the largest allocation was to real estate-direct (30%), followed by private equity-direct (25%), hedge funds (22%), private equity funds (19%), real estate investment trusts (3%) and commodities (1%).

“We asked a lot about the changes they expect going forward, and where they expect significant changes to occur,” Peltz told CIO. “At the top of the list was investing in technology, investing in ESG, and co-investing, and down toward the bottom of that list is investing in traditional investments and investing in established managers.”

Among the family offices surveyed, 76% said they expect investing in technology to experience the most significant increase, while 72% said the same of investing in ESG (72%), with 68% citing co-investing. Approximately 60% said they expect global investments to see the sharpest rise in investments, while 48% named alternative investments, followed by start-ups (38%), emerging managers (26%), established managers (22%) and traditional investments (21%).

The firm asked family offices to rank a list of possible “evolutionary changes,” and 83% of respondents said they expect to see significant increases in multi-family offices compared with 61% saying the same for single-family offices. The survey also found that more than 70% of respondents observe conflicts of interest in the family office community. They said some family offices are providing more services, starting companies, and looking for investors, which they say will lead to less collaboration as they start marketing to each other.

Of those surveyed, 54% do not offer product and services to others, however of the 46% who do, consulting, mergers and acquisitions, co-investing, private deals, real estate investment ideas, hedge funds, non-correlated alternatives, and special purpose vehicles were cited as the products and services they offer.