Family offices allocate almost half of assets to alternatives – JP Morgan

May 1, 2024 (Preqin News) – Family offices are broadening the opportunity set of their investment portfolios, with the average portfolio currently having a 45.7% allocation of alternative assets, JP Morgan’s 2024 Global Family Office Report says.

JP Morgan finds that many family offices take a greater proportion of liquidity risk in their portfolio than they used to, despite still consistently building out public equity (26% of the portfolio on average), as well as fixed income and cash allocations (20% on average).

According to the report, larger family offices tend to have the highest allocations to alternatives. However, this only ranges from 43.9% for those with $50–500mn assets under supervision, to 47.3% among those with $1bn or more. In Preqin’s recent Fundraising from Family Offices: A guide to raising capital report, fund search data suggests the two most popular asset classes are private equity and real estate, invested in by 86% and 77% of family offices, respectively.

JP Morgan finds target returns to be around 11% on average. Although US family offices, which form a large part of the surveyed investors, are less likely to have a target return than family offices from outside the US. This may reflect family offices’ shift to alternatives, in a bid to achieve greater long-term returns, as well as many families’ backgrounds in the building trade and being able to invest in line with this experience, the bank said.

Altogether, its survey participants held approximately $164.3bn of assets under supervision when surveyed in Q4 2023. Of the 190 single-family offices surveyed globally, 144 were US-based.

In Preqin’s investor survey, at least 50% of family office respondents across private equity, real estate, infrastructure, and hedge funds reported they look to alternatives for diversification. High risk-adjusted and overall returns were also popular reasons for investing in alternatives, particularly for private equity and venture capital respectively.

JP Morgan’s survey found average family office operating costs to be $3.2mn annually (although the median is $1.3mn), and increasing professionalization is seen across the industry. Smaller and midsize family offices are more likely to outsource investment management, while only 20% of family offices with $1bn or more in assets under supervision outsource this.

The biggest gaps faced by family offices are reported to be in cybersecurity (40%), family governance and succession planning (31%), and family wealth education (31%). A quarter of respondents reported experiencing a cybersecurity breach or financial fraud, yet 20% do not have cybersecurity measures.

_{The opinions and facts included within the above do not constitute investment advice. Professional advice should be sought before making any investment or other decisions. Preqin providing the information in this content accepts no liability for any decisions taken in relation to the above.}