They say the world’s wealthiest look after the pennies, so the pounds look after themselves. So if you’re looking to build your own fortune, you could do a lot worse than consulting Citi Private Bank’s Global Family Office 2024 Survey. The results provide a behind-the-scenes look at the investments of the very well-off, as well as their money managers’ current views on the financial markets. I’ve pulled together my top takeaways and given my take, so you can see how the other half invest.
What’s a family office?
Ultra-high-net-worth individuals and families are typically classed as those with at least $100 million in assets. And when you’re laden with that much cash, you enlist a private company – known as a family office, in this case – to help manage your assets. These family offices invest over the long term, with a goal of steadily increasing those portfolios rather than making a quick buck. (Let’s face it, they have enough of them.) Take Citi’s clients as an example. Half of the 338 family offices surveyed manage more than $500 million in assets. More than a third of respondents come from Asia and Latin America, but the biggest offices are based in North America. You get the gist: we’re dealing with the world’s wealthiest and their portfolios.
How are family offices investing?
Takeaway one: sentiment.
Family offices seemed bullish – that is, confident and positive about future returns – across the board. A near unanimous 97% of respondents expected positive returns in the next year. About half of them forecast between a 5% and 10% return, while a third anticipated 10% to 15%.
My take: Now that many major central banks have a handle on inflation, they’re trimming interest rates to give economies room to breathe. Crucially, the US economy seems on track to avoid a recession. So in my view, it’s reasonable to be optimistic about the outlook for investment returns across a range of asset classes. After all, the S&P 500 typically hands out returns of more than 10% after the first interest rate cut – if the US economy avoids a recession.
Takeaway two: asset allocation.
Cash is no longer king. Family offices have taken stores of cash and moved them into bonds, stocks, and private equity investments, rather than keeping it aside for a rainy day. Almost half of respondents (49%) have increased their exposure to bonds since last year. That makes sense: bond yields – the annual return for investors – were near their highest levels in years. At the same time, 43% increased their holdings in recently reinvigorated stock markets, and 40% upped their private equity weighting. That left their overall allocations looking like this:
Asset allocations of family offices in 2024. Source: Citi Bank.
My take: Those portfolios look nicely diversified, with a mix of stocks, bonds, and various alternative investments. I previously wrote about investors buying the dip back in August, and it seems family offices have been following the same pattern and puffing up their stock portfolios. If you are aiming to build a diversified portfolio, you may have also added to your bond holdings earlier this year when yields were higher.
Takeaway three: key concerns.
For the first time since 2021, inflation was no longer the top concern. Interest rates are now top of that list, on the minds of 52% of respondents. They’re followed by US-China relations (45%), market overvaluation (45%), and inflation (42%). Outside of investing, other cited risks included cybersecurity and geopolitics.
My take: Spikes in volatility and drawdowns in stock markets are part and parcel of investing. Think of the selloff in August: worse-than-predicted economic data sparked widespread worries of a recession and dragged down many major stocks. And sure, it picked back up shortly after, but you can never be certain that the current calm will last. That’s why diversification is so important: if you have holdings that react differently to various macro events, you can reduce the negative impact of a single influence across your portfolio as a whole.
Takeaway four: regions.
Unsurprisingly, family offices put most of their might behind North America. The US made up 60% of their overall weighted allocations, up from 57% last year. That was followed by Europe (16%) and Asia-Pacific excluding China (12%). Allocations to China have almost halved from 8% to 5% since last year, and even family offices based in Asia have trimmed their exposure to the struggling economy.
Family offices liked the Middle East for attractive investment potential across real estate, energy, and the broad reinvention of the regional economy. Japanese stocks also looked compelling as they’re trading below their long-term averages. And India’s appeal was clear: the economy’s on track to grow by 8% this year, the fastest pace in the world.
My take*:* It’s no surprise that the US came out on top. The country’s stock market performance has been stellar and its economy has proven resilient – plus it’s home to many of the innovative companies (think megatech) that have investors’ heads spinning. Home bias – the tendency to invest more in markets closer to home – has paid off for US investors over the past few years, thanks also to the strong US dollar.
On the other end of the spectrum, the demise of China’s economy and heightened geopolitical risks have left its stock market unloved and valuations looking cheap. The jury’s still out on whether the measures announced by its government and central bank this week – including lowering interest rates and supporting the debt-laden property market – will lead to a more sustainable recovery for its economy and stock market.
While I agree that India’s continued and impressive growth makes it attractive, high stock valuations make it a challenging sell for value investors. That said, strong company earnings in the coming years will likely bring valuations down to more palatable levels.
Takeaway five: artificial Intelligence.
You might think the wealthier pockets of society would stick to old paintings and aged wine, but they’re on board with new gizmos and gadgets, too. More than half (53%) of family offices have invested in generative AI technologies, with another 26% considering it. Mind you, family offices haven’t brought the tech into their own offices. Despite investing in the tech, they’re not yet using it for portfolio construction and risk management.
My take: AI remains one of the most exciting investment opportunities in the world. That said, large-scale AI and tech plays like Nvidia and TSMC are no longer the dominant forces behind the stock market’s rally, with a broader recovery helping to spur stocks along over the last couple of months. Right now, the real stars are Constellation Energy and Vistra. See, AI data centers are guzzling up vast amounts of energy, so investors are backing utility companies as an indirect play on the AI trend. And it’s no wonder Constellation’s been a key focus: Microsoft announced last week that it’ll buy energy from the firm’s soon-to-be restarted nuclear reactor at a premium price for the next 20 years to help meet its carbon emission target.
Takeaway six: digital assets. About a quarter of respondents had already invested or were planning to invest in digital assets. Direct cryptocurrency investing continued to generate the most interest, followed by crypto-linked investment vehicles such as exchange-traded funds (ETFs).
My take: Digital assets remain a growing area of interest for institutions and retail investors. Case in point: investors have stuffed more than $17 billion into various bitcoin ETFs since they launched earlier this year.
