Family offices are taking the lead in alternative investments, capitalising on market shifts and evolving strategies.
As institutional players grapple with liquidity constraints, family offices are stepping in and reshaping the landscape.
“Family offices are absolutely playing a bigger role in the alternative investment space,” Jessica Jones, head of Asia at PGIM Investments, told AsianInvestor.
Recent data underscores this trend.
According to a report by JP Morgan, the average portfolio allocation to alternatives by family offices has notably increased to 45%. This shift reflects a growing willingness among family offices to take on illiquidity risk to achieve greater potential long-term returns.
Rachel Dabora, analyst at Preqin’s Research Insights, highlighted the rising prominence of family offices as key capital sources in alternative investments.
She explained that this trend is driven by “growing overall wealth, a growing concentration of wealth in the wealthiest demographics across certain economies, the potential benefits of family office structures, and the desire of ultra-high-net-worth individuals to invest flexibly and navigate generational wealth transfers”.
“They are also a limited partner type that typically has more flexibility to allocate more towards alternatives when opportunities arise,” Dabora elaborated.
Jones noted another reason for this trend: the “continued family office growth we see in markets such as Hong Kong and Singapore.
According to McKinsey, the number of single-family offices in in Hong Kong and Singapore, the hubs for such entities in the Asia–Pacific region, has quadrupled since 2020 to about 4,000 across both jurisdictions.
SHIFTING PREFERENCES
This evolving landscape has also seen a shift in family offices’ investment preferences.
Venture opportunities seem less at the forefront of investor interest right now, for both institutional and family office investors, Dabora said.
Hedge funds, once a staple investment, have also fallen out of favour, Dabora observed. “This is likely due to high fees, a negative perception of performance, and a greater correlation to public markets. Instead, there is a noticeable uptick in interest in private debt, aligning with global investor sentiment,” she explained.
“We have seen more interest from family office investors in private debt than in years prior”, she added.
Raffles Family Office’s alternative investment offerings primarily cover private equity, digital assets, and real estate. William Chow, deputy group CEO of Raffles Family Office, sees family offices becoming active across these areas.
“Within this space and more specifically to private equity, we do see family offices becoming a new force in terms GP fundraising,” he noted.
Jones further elaborated on the evolving preferences of family offices.
“Clients who already have a track record of investing in private market funds like private equity now show more interest to diversify into other private market asset classes like private credit, real estate, and infrastructure,” she said.
“We are also seeing increasing take up of longer-dated private market fund raising coming from family offices,” she added.
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CONTINUATION EFFECT
The increasing dominance of family offices in alternative investments shows no signs of slowing down.
According to Dabora, this trend is likely to persist, driven by multiple key factors.
“As traditional institutional investors face regulatory constraints and risk-averse mandates, family offices can pursue higher-risk, higher-reward investments, further solidifying the relevance of their role in the fundraising market,” she said.
The ongoing generation of wealth transfer and the influx of potentially entrepreneurial-minded investors, many of whom favour alternative assets, will contribute to this growth, she noted.
“The flexibility of the family office structure and its regulatory benefits, depending on the country, make it an increasingly popular way to ensure wealth preservation and aid in investment opportunities,” she added.
Chow also expects this momentum to continue.
“Firstly, family offices are increasingly playing a significant role as investors in the market. Secondly, these family offices are becoming more educated and sophisticated in their investment strategies. Lastly, the external factor of the Federal Reserve rate cut tends to benefit risk assets, including alternatives,” he explained.
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