Family offices are shifting their portfolios from cash to risk assets in anticipation of positive returns over the coming year, according to research from Citi Private Bank.

Citi Private Bank’s Global Family Office Group has released its 2024 Family Office Survey, outlining key challenges and areas of potential opportunities for family offices going forward.

Portfolio shifts

It found that family offices were “putting their cash to work” by making significant portfolio shifts from liquid assets to fixed income, and public and private equity in 2024.

These shifts came amid continued optimism among family offices regarding the outlook for portfolio performance over the coming 12 months, with 97 per cent of respondents expecting positive returns.

Less than at third (31 per cent) raised their weighting to cash, compared to 47 per cent last year, with 37 per cent cutting their cash holdings.

Half (50 per cent) increased their allocation to fixed income, while 43 per cent of family offices increased their exposure to public and private equity this year.

The report showed that public equity and fixed income weightings rose from 22 per cent to 28 per cent and from 16 per cent to 18 per cent, respectively, year-on-year.

Private equity dipped from 22 per cent to 17 per cent, which Citi said may have been accentuated by valuations taking longer to adjust upward compared to those of public equities.

North America received the highest overall weighted allocations (60 per cent) followed by Europe (16 per cent) and Asia Pacific excluding China (12 per cent), with allocations to China falling from 8 per cent to 5 per cent.

Family offices were found to have increasingly built portfolio exposure to artificial intelligence (AI), with half reporting investments in public or private equity, and another quarter ‘actively considering it’.

However, the adoption of generative AI within family offices was “lagging”, with only around one in 10 mentioning it.

Over the past 12 months, 78 per cent of family offices reported positive performance, with 10 per cent seeing no change and 12 per cent experiencing negative performance.

Challenges

Interest rate evolution was the top concern amongst family offices, with 52 per cent citing it as a worry, followed by US-China relations and market overvaluation, each cited by 45 per cent of respondents.

Inflation worries were not predominant in the findings for the first time since 2021.

While 86 per cent of family offices said they were facing at least eight categories of risk, most of these were felt to be very well or well managed, with exception for the cyber security, geopolitical, and family dynamics risk categories.

When asked about the primary roles of the head of the family office, risk manager was the responsibility with which most respondents identified, after investment manager.

Families’ primary concern was asset preservation, followed by preparing the next generation for their future responsibilities.

However, their family offices’ primary focus was investment management, accounting, reporting, and tax, while fostering family unity and continuity came third.

Family offices regarded meeting family members’ expectations as their top challenge (54 per cent), overtaking adapting to market conditions (47 per cent).

Structure

Citi found that investment approaches were becoming more sophisticated, with increasingly disciplined processes and a strong commitment to alternatives.

The majority (60 per cent) of family offices had built an investment team led by a CIO, alongside investment committees and investment policy statements.

Three-quarters (75 per cent) had engaged in direct alternative asset allocations, mirroring the behaviour of leading institutional investors.

Although two-thirds of families relied on a governance system within investments, Citi noted that governance remained a work in progress across the broader family enterprise.

Almost half (48 per cent) said they did not have an investment policy statement, while less than half had a governance structure in place for other family office and family activities.

With family offices continuing to professionalise, investment management (54 per cent) and reporting (62 per cent) were the only two services the majority of offices provided internally, with others mostly performed externally or jointly.

Commenting on the findings, Citi Private Bank head, Ida Liu, said: “Our family office clients are increasingly becoming more global as they seek to create and preserve wealth amidst new market challenges and opportunities.

“As interest rates evolve and geopolitical challenges persist, ultra-high net worth investors and their families are putting cash to work and shifting their portfolios toward public and private equity. Family offices are focused on the future as they navigate evolving markets worldwide.”

Global Family Office Group family office advisory head, Alexandre Monnier, added: “While family offices are innately unique, our survey demonstrates that there are many commonalities around their concerns and behaviours.

“Findings like these unveil the new ways family offices are managing their wealth – through portfolio diversification and sophisticated investment approaches – and preparing families to achieve both financial and family wellbeing.”

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