CIOs focusing on private credit, infrastructure, and private equity in 2024 – KKR
Many family offices are in ‘major growth mode’
Investments in alternatives come at expense of public equity, cash holdings
February 14, 2024 (Preqin News) – The illiquidity premium offered by alternative assets will attract increased family office allocations to private debt, equity and infrastructure in 2024, according to KKR.
According to the 2023 edition of KKR’s annual survey of global family offices, leading Chief Investment Officers (CIOs) are more active than other allocators to private investments, and plan to increase exposure to alternatives as they reduce holdings in public equities and cash.
Many family offices are also in ‘major growth mode’, the survey found, boosting their risk management, investment, and product capabilities, while also looking to partner with suitable GPs in regions and sectors where they don’t have the knowledge ‘in-house’.
Family offices have increased their allocations to alternatives by 200 basis points since 2020 with the average allocation now standing at 52% of assets, according to the report that surveyed over 75 CIOs in North America, EMEA, APAC, and Latin America, overseeing more than $3bn in assets on average.
‘These investors are diversifying across asset classes, and as they mature, they are getting better at harnessing the value of the illiquidity premium to compound capital,’ said Head of Global Macro and Asset Allocation, Henry McVey. ‘They are also using better hedging techniques and increasing both their desire and ability to lean into dislocations, strengths that we believe will position them to be at the winner’s table at the end of this cycle.’
The report found that 42% of respondents plan to decrease allocations to cash, and 31% to public equities, while 28% will increase exposure to private equity, 31% to infrastructure, and 45% to private credit. Cash positions were described as ‘still high’ at 9%, which KKR said ‘confirms our thesis that many investors are under-risked for today’s markets.’
Meanwhile, appetite for real assets is growing, having risen from 11% of assets in 2017 to 15% in 2023. Offices are looking to capitalize on key investment themes, including supply chain onshoring and reshoring, energy storage, AI, and healthcare, according to the report.
Other findings included a notable difference in asset allocation approaches between older and newer family offices, with more established operations typically less exposed to cash and more exposed to private equity, compared with offices that are five years old or younger. In terms of risk, geopolitics has emerged ahead of inflation as the chief concern among CIOs, with 40% citing it as the most important risk, compared with 25% who identified rising prices as their largest concern.
‘Our survey and subsequent conversations lead us to believe that, while this group of CIOs is in a great position to play offense in today’s market, there is still more that they can do from a portfolio construction perspective to improve their return per unit of risk,’ McVey said.
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