Family Offices, Heavy With Cash, Keep Smiling On Alternatives – KKR

Tom Burroughes

4 August 2024

Family offices are allocating more to alternatives assets, with 52 per cent of assets allocated to areas such as private equity, hedge funds and private credit, according to a recent study by .

The exposure to alternatives has, in percentage terms, risen 200 basis points since 2020, KKR said in a note from Henry McVey (pictured), chief investment officer of its “balance sheet” and head of global macro and asset allocation.

Within the overall “alternatives” space, there has been a significant rise in holdings of real assets, McVey wrote.

KKR’s report was based on a proprietary survey of more than 75 CIOs in charge of more than an average of $3 billion in assets.

Among other findings, McVey said that cash positions were “high” at 9 per cent of all holdings, which McVey said proves KKR’s thesis that many investors are “under-risked for today’s markets.”

Such a comment might be controversial in some eyes, because rising interest rates have encouraged a flood into money market funds and certain types of bonds over the past year. Recently, approaches between family offices set up within the last five years and those that had already scaled before Covid, with more seasoned family offices typically holding less cash and allocating more to private equity,” he wrote.

“There are pronounced regional differences in asset allocation. US family offices allocated less to traditional private equity compared to counterparts in Latin America, Asia and Europe, while Asia-based family offices had relatively heavy allocations to real estate,” he continued.

Investment chiefs are also defying conventional wisdom to find value in private markets, such as in the oil, gas and industrial sectors. (Editor’s note: Such a finding suggests that enthusiasm for “green” investing isn’t so strong that it trumps a desire to find profitable value where it exists.)

The war in Ukraine, the Israel-Hamas conflict, and attacks on shipping in the Red Sea area off east Africa have propelled geopolitics up family offices’ worry list. Geopolitics is now ahead of inflation as the main concern for CIOs. More than 40 per cent of respondents said this was their main worry.