2022 was a challenging year for investors worldwide, including Family Offices. Moving into 2023, with geopolitical conflicts, interest rate hikes and record-high inflation still in sight, the macroeconomic landscape is shrouded in uncertainty. As entities that manage the investment for ultra-high-net-worth families, the uncertainty in the market has prompted Family Offices to revisit their investment strategies and portfolios. This article breaks down five trends that shape the Family Office investment space in 2023.

  • Families are shifting away from fixed-income investment

Interest rate hikes and tightened monetary policies have resulted in Family Offices reducing their fixed-income allocations. The UBS Global Family Office Report 2022 indicated that there is a general trend of Family Offices foregoing liquidity for higher returns. Fixed-income rates are highly subject to credit and interest rate risks. Amid the increasingly volatile market in 2023, Family Offices are actively looking to decrease their investment in liquid asset classes like fixed-income and are leaning towards illiquid assets.

  • Real Estate continues to be a favourable asset class

Real Estate has long been a staple asset class for Family Offices worldwide. It produces an extra stream of cash flows, creates tax advantages, and is often considered a “safe” asset for Family Offices. As a tangible and illiquid asset, it is an effective hedge against inflation and has become a sought-after replacement for liquid investment among Family Offices. As inflation remain a major concern for investors in 2023, Real Estate will continue to be a favourable asset class among Family Offices.

  • Families are turning to Private Equity

Private equity has garnered a lot of interest from Family Offices in recent years. The Ultra-High Net Worth Private Equity Investing Report 2023 by Campden Wealth and Titanbay points out that 84% of ultra-high-net-worth investors hold private equity investments, with a further 10% expressing interest in it.

Private Equity is a high-return asset class that provides Family Offices with significant opportunities to grow their capital. Additionally, the private market has maintained a high valuation despite turmoil in the public market. Family Offices are increasingly investing in Private Equity as an attempt to diversify investment portfolios and reduce exposure to market volatility.

Within private equity portfolios, venture capital has garnered the most attention from Family Offices and they often invest in venture capital through venture funds or venture debt. Private Equity is undoubtedly a dominating focus area for Family Offices and an immense scope for expansion is anticipated in 2023.

  • ESG and sustainable investment on the rise

We are in the middle of a multigenerational wealth transfer. As the younger generation inherits wealth, they will also shape the investment strategies of their respective Family Offices. The younger generation has shown interest in environmental, social, and governance (ESG) practices. On the other hand, climate crises and movements have amplified investors’ focus on ESG worldwide. It is predicted that ESG will be one of the major focuses for Family Offices in 2023.

Beyond wealth preservation, Family Office is also a mission and value-driven entity that aims at making a positive impact and protecting the family legacy. Integrating ESG goals into investment practices will allow Family Offices to establish a purposeful legacy and positive reputation for the families they serve.

Sustainable investment is a very common ESG practice for Family Offices and reportedly, over half of the Family Offices worldwide had sustainable investments in 2022. The ongoing Russian-Ukraine war has prompted a transition from natural energy to green energy. Consequently, there is a high policy momentum in supporting green and sustainable energy. It is believed that there is an incredible opportunity to initiate early investments in green energy production in 2023.

  • Moderate growth in allocation to digital assets and distributed ledger technology

The rise of digital assets and distributed ledger technology like cryptocurrencies and blockchain in recent years have charmed a lot of Family Offices. However, it is to note that allocations to digital assets and distributed ledger technology are far lower compared to other asset classes.

It appears that Family Offices are still in the stage of navigating the space. Despite being intrigued by the immense potential of the said asset class, Family Offices worldwide are approaching this relatively new investment option with caution. The biggest concern surrounding digital assets and distributed ledger technology is the lack of regulation. It is anticipated that growth in this space will be moderate in 2023.

Inflation will continue to shape investment decisions in 2023. Driven by the need to protect their enormous wealth from macro uncertainty, Family Offices are shifting from liquid assets to illiquid assets and will continue to mitigate risks by diversifying their investments across different asset classes. Regardless of the macroeconomic factors, all types of investment are complex and come with risks. It is crucial for Family Offices to define liquidity needs and risk tolerance before deploying their capital. Therefore, skilled investment professionals are required to ensure success.

Agreus is an established full-service resources and recruitment consultancy dedicated to working exclusively with Family Offices. Our sole purpose is to find elegant and effective solutions to the people-problems faced by Family Offices globally. For a more tailored conversation about hiring investment professionals for your Family Office, please do not hesitate to get in touch.