Family capital survey highlights growing trend

10 key findings from the KKR Global Macro & Asset Allocation team

There’s growing interest in alternatives among average family offices¹, according to a recent survey conducted by the KKR Global Macro & Asset Allocation team. The survey questioned more than 75 CIOs in 2023 and found that in the average family office, 52% of average assets are allocated to alternatives, up 200 basis points from 2020 — the team thinks that’s a percentage that could climb even higher over the new few years.

"...93% of respondents cited growing assets for future generations as a focus for their portfolios."

These clients are often some of the most innovative investors as they can focus on long-term capital appreciation with a desire to build wealth for future generations. This means they are not trading in and out of positions but holding certain portions of their portfolio longer term in an effort to fully capture the benefit of compounding. They have a barbell approach to asset allocation, with about half of assets in liquid investments such as cash, bonds, and stocks, with the other half focused on private markets asset classes like private equity, private credit, real estate, and infrastructure.

Although this allocation is likely higher than for the average investor, we think there are benefits in studying the approach. We’ll take a closer look at some of the key findings and you can dig into the full results.

The important role of alternatives

Alternatives are an important part of family office portfolios, KKR found: Family offices are focused on compounding capital and growing wealth. It’s no surprise, then, that 93% of respondents cited growing assets for future generations as a focus for their portfolios. They understand the role private markets investing plays in capturing the excess return associated with long-term investing or what we call the illiquidity premium.

Real assets on the rise

Real assets (assets backed by hard collateral) have gained market share: Real estate, infrastructure, and commodities have been important additions to portfolios to help in the fight against inflation. All told, real assets jumped more than 200 basis points in 2023 to a sizeable 15% of average total assets, compared to 13% in 2020 and just 11% in 2017.

Too much cash?

Family offices, like most investors, have too much cash: Nearly 25% of respondents had more than 10% of their assets in cash. CIOs recognize that they need to put more money to work.

Beyond growth stocks

CIOs are looking beyond growth stocks for new investments: CIOs are traversing in the “less sexy” and “unloved” parts of the market including more traditional industrial, manufacturing, and oil and gas to avoid the herd mentality of a crowded growth trade.

Private markets

Family offices want to increase private markets allocation in 2024: CIOs indicated that they were planning to allocate more to private credit (45%), infrastructure (31%), and private equity (28%) at the expense of public equities and cash.

Generational divide

Younger and older family offices behave differently: More mature family offices typically hold less cash and allocate more to private equity. Cash balances for family offices of less than five years old stood at about 30% of AUM versus around six percent for the more mature offices.

Regional differences

Approaches to asset allocation differ by region: Allocations in Asia were too skewed to real estate (21% vs. 11% or less for other regions) while U.S. family offices were too light in private equity at 12% compared to 20-25% in Latin America, Asia, and Europe.

Clearing the bar

The bar for new investments is high: CIOs prefer doing business with partners they know and trust.

Top CIO concerns

Geopolitics and U.S. China relations are top concerns: Heightened geopolitical tensions are causing CIOs to rethink direct investments into China. Instead, they are focused on India, Japan and Korea as destinations for capital. Across the family offices we surveyed, more than 40% of respondents identified geopolitics as the single most important risk today.

Tech talk

Need for technology: CIOs are looking for more resources to improve reporting and tools for building better portfolios.