Family offices move money from the stock market to private equity

Family offices now have more of their money invested in private markets than the stock market – even when the market is rising – according to a new survey. A survey of North American family offices by Campden Wealth and RBC found that family offices had 29.2 percent of their investments in private markets, which include private equity, venture capital and private debt, compared to 28.5 percent in publicly traded stocks.

This is the first time in the survey that family offices have invested more in private markets than public equities. Their equity allocation has decreased from 31% the year before, while their private investments increased from 27%. The remaining assets were invested in cash, bonds, alternatives, hedge funds, commodities, real estate and other investments.

“Family offices have maintained a consistent pattern of expanding their allocations to private markets,” according to the study.

And they plan to concentrate even more on private markets in the coming months, according to the survey, which found that 41 percent of family offices plan to increase their allocations to private equity funds, and a third plan to put more money into direct private equity deals.

Only 23 percent planned to add to their public stocks in developed markets, while 15 percent plan to reduce their stock holdings, according to the survey.

The findings underscore a pervasive shift in the investment practices of family offices, the private investment arms of families with assets of typically $100 million or more, even despite a recent surge in stocks. The S&P 500 has risen 19 percent so far this year.

Over the last decade, and especially after the pandemic, family offices have rushed into private equity and so-called direct deals, where they buy stakes in private companies on their own. Family offices say that private markets offer better returns over the long term without the volatility of stocks.

Many founders of family offices, usually entrepreneurs who made their fortunes starting and selling private companies, also like to capitalize on their experience by finding companies in their area of expertise and providing advice along with capital.

It is unclear whether the bet will continue to pay off. Private equity funds are struggling with tight financing and expensive loans, along with a lack of exits given the drought of IPOs.

At the same time, as investors expect interest rate cuts in 2024, stocks can continue to rise.

When asked which asset class will give them the best returns in the coming years, family offices ranked “private equity and venture capital” first, followed by listed shares.

“Despite the cautious approach adopted by family offices in response to the financial markets’ (2022) retreat, their perspective on the sources of the best long-term returns remains stable,” the report says. “Private equity and venture capital continue to lead the list.”

Along with private markets, family offices are also showing increasing interest in alternative assets, including real estate and commodities. When asked about their investment priorities for the coming year, the top choice was to “invest in alternative asset classes.”

Family offices are still cautious about the coming year. Nearly 60 percent cited “recession risk” as the biggest financial risk, followed by China’s tensions and “excessive Fed tightening.”

Their bond holdings, which currently represent 8 percent of investments by the group, could expand further, with a third planning to add to its bond positions.

Family offices also have a large amount of cash waiting for the right opportunity. They hold 9% of their assets in cash, almost twice as much as in 2021.

“They have a lot of money on the sidelines,” says Angie O’Leary, head of wealth planning for RBC Wealth Management, US. “They can use that money on things like real estate or an acquisition or investing in private markets. They’re not in a hurry, they’re just looking for that great opportunity.”

The survey covered 330 single-family offices and private multi-family offices around the world, including 144 in North America. The family offices surveyed had an average of $1.3 billion in total wealth, including private companies.

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