Family Offices Plan to Increase Alts Allocations

CIOs plan to add exposure to private equity, credit and infrastructure and funding by selling cash and equities, according to KKR’s 2023 family capital survey.

Family office CIOs plan to increase their exposure to alternative investments in 2024, according to KKR & Co. Inc.’s Henry McVey, its CIO and head of global macro and asset allocation.

McVey’s comments came in the firm’s annual family capital survey report, “Loud and Clear.” The firm surveyed and interviewed more than 75 family office CIOs in December 2023.

Family offices already hold a significant allocation to alternatives compared with other institutional investors. In 2022, family offices held 42% of their assets in alts, compared with 29% for foundations, 28% for high-net-worth individuals and 23% for pensions. As of 2023’s survey, of their assets in alternatives.

Of those surveyed, 40% were based in the U.S., 37% in Europe, the Middle East and Africa, 12% in Latin America and 11% in Asia. The average AUM of those surveyed was slightly more than $3 billion.

Cash and Equities Are Out

To further increase their exposure to alternatives, family office investors expect to trim their cash and equity holdings and use the proceeds for alts, KKR reported.

According to the survey, nearly 45% of family offices plan to reduce their allocations to cash, and more than 30% plan to reduce their public equities. In comparison, 45% of these family offices plan to increase their allocations to private credit, while roughly 30% want to increase their allocation to infrastructure.

McVey noted that family offices want to increase exposure to alternatives to take advantage of the illiquidity premium across a variety of alternatives. In contrast, other allocators have pulled back from alternatives so they can stay more liquid. Family offices are most interested in compounding capital, and 93% of respondents said growing assets for future generations is a focus for their portfolio.

Cash has become less attractive to family offices because of the expectation that interest will go lower, so those investors reported that they will look for opportunities elsewhere. The report also noted that many family offices are looking to offload large-cap U.S. equities.

The report noted that surveyed funds had, on average, 9% of their portfolios in cash. “Cash positions are still quite high at nine percent, and as such, we continue to think that many investors are still under-risked for today’s markets,” McVey wrote.

Infrastructure as an asset class has also been growing in popularity among family offices, the report noted.

“We think more CIOs around the world, including family office CIOs, are appreciating the merits that infrastructure can bring to a portfolio, including inflation protection and yield,” wrote McVey.