Family Office
September 13, 2022

Key portfolio actions

September 13, 2022
Family Office Group
SUMMARY

Continued commitments to private equity (52%) and investments in real estate (43%) were the top two key portfolio actions, in line with the responses from last year’s survey.


Key portfolio actions

Continued commitments to private equity (52%) and investments in real estate (43%) were the top two key portfolio actions, in line with the responses from last year’s survey. However, possibly sensing frothiness in the public markets, family offices appear to have shifted toward strategically cashing out of some of their public equity positions (28% in 2022 versus 19% in 2021), while remaining open to opportunistic trades (34% in 2022 versus 71% in 2021).

 
Key portfolio actions taken
 

Direct investments

Direct investing remains a primary focus for family offices, with about a third (29%) of them allocating between 10% and 20% of their portfolio, while another third (35%) allocate more than 30%.

Direct investments are split almost evenly between real estate (37%) and operating businesses (33%). Venture capital is growing, representing about 20% of direct investments, fueled in part by family offices not finding sufficient attractive opportunities in operating business and real estate. 

With many investors chasing direct investment opportunities, family offices have become quite flexible when it comes to their preferences in terms of type of stake for direct investments, with controlling stakes (defined as 25%+ ownership) representing about a third (37%), followed by passive investments (24%) and minority investing (19%).

Family offices express a strong preference for direct or co-investments (72%) over other alternatives such as joint ventures or partnerships.

In terms of sectors, real estate (48%), information technology (34%) and healthcare (29%) are the primary focus of family offices for direct investments.

 

 
Sector preference for direct investing
 

Sector preference for public markets

Unsurprisingly, healthcare (49%), information technology (39%) and real estate (30%), are the top-three preferred sectors for public markets investing in 2022, followed by energy (27%) and financial services (21%).  These sectors have continued to be of predominant interest over the past few years, with relatively minor variations.

 

 
Sector preference for public markets exposure
 

Sustainability and ESG investing.

The opportunity to translate curiosity about sustainable or ESG investments into action remains significant, as 60% of family offices still have not considered aligning some of their portfolio with such themes or are unsure how they align. There is no favorable change in this position year over year. This is perhaps a conundrum worthy of a deeper look, given the significant press and expressed intention by business and political leaders. Additional education may also be required to better communicate and quantify sustainable investing within a portfolio, as demonstrated by the 13% who are unsure how their portfolio aligns.

 

 
Portfolio alignment with sustainability and ESG principles
 
 

Significant demand remains within the environmental issues of ESG, with social concerns still lagging in interest, potentially due to the difficulty in measuring impact in this area.

 

 
Preference for ESG focus in addition to returns
 

Co- or direct investment opportunities, private markets more broadly, innovative solutions and partnerships demonstrate the greatest potential for ESG-related investments. This may demonstrate investor preferences to direct capital into opportunities that have a clear and measurable impact, and family offices are particularly well positioned to utilize their networks to partner with like-minded families to access deals. It would be interesting to know if these partnerships could also include advocacy and/or philanthropic efforts.

 

 
Preference for ESG investment types
 

Crypto assets

As might be expected, family office executives have taken the time to learn and evaluate potential allocations to crypto assets. They appear to have concluded their research and elected not to join the space or have left the space, as 51% of family offices stated crypto assets were not a priority or interest of the family in 2021, whereas in 2022 this number grew to 68%. The number of families in research mode or having made minimal commitments decreased by a total of 10% as well. Based on the feedback received at our Family Office Leadership Program, most choose to invest in picks and shovels (i.e., infrastructure) versus the cryptocurrencies themselves.

 

 
Investing, buying and trading crypto assets
 
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