CHICAGO (July 26, 2022) - Family Office Exchange (FOX), the leading global membership organization serving enterprise families, family office professionals, and wealth advisors, has completed its annual Global Investment Survey, focusing on the investment sentiments and activities of global family office CIOs over the past year.
The results show family investors at a turning point. At the time of the survey, following two years of record returns, respondents faced the compounding threats of global geopolitical instability, fast-rising inflation, and the very real prospects of economic recession over the coming year. As a result, 93% of respondents indicated they expect high or extremely high market volatility in 2022. At the same time, 44% expect the economy to improve, and 61% are bullish about the markets in the year ahead.
Allocation into direct private equity continues to rise
In 2021, enterprise families shifted funds out of cash and hedge funds and into private equity (PE), venture capital (VC), and direct investments—portfolio allocations to direct PE were up 5 percentage points year-over-year. These asset classes are better equipped to serve the unique needs of multi-generational families. They are seen as attractive vehicles to deliver incremental returns, diversify away from the public markets and offer direct exposure to impact investments and opportunities to educate and engage rising-gen family members.
Impact investing is slowing down
Despite continued interest in impact investing, family wealth owners appear to be slowing down—and even reducing—their allocation to the category, citing concerns about impact measurability, short track records, and insufficient education on the topic. Respondents identified the lack of clear and universally recognized metrics that define success for social-impact investments as the top barrier preventing them from engaging further in impact investing. In addition, most family offices expect market-rate returns, which their impact investments may often not meet.
Outsourcing of investment expertise will continue to rise
The FOX study shows a significant disparity between smaller family offices—those with fewer than 7 employees—and larger ones in their propensity to employ inhouse PE or VC professionals—only 13% of small offices have such professional expertise on staff as compared to 59% of large offices. As family office allocations to privates, primarily via direct investments, continue to grow, so do their needs for skilled professionals who source, evaluate, execute, and manage direct PE and VC investments. Smaller family offices are more likely to rely on outsourced expertise to meet these needs. Also, given these constraints, they are more likely to rely on friends and family for deal flow and resort to real estate as their go-to direct investment vehicle. At the same time, larger offices are more likely to invest in private equity directly and via allocations from funds, brokers, and investment bankers to which they have access.
Looking at the year ahead, enterprise families and their family offices plan to overweight private equity (65% of respondents) and cash (44%), and underweight fixed income (68%). Large offices are much more aggressive in their plans to reallocate from fixed income to private equity, while small offices are more likely to park funds in cash. Nearly all family offices expect their investments to at least match the markets' performance over the next two years, and a third of respondents expect to beat the markets.
Family Office Exchange (FOX) was the first and continues to be the industry-leading membership organization that brings together the collective intelligence of nearly 500 multi-generational families, family office executives, and trusted advisors to build a community focused on peer exchange, continuous learning, and objective guidance. The community includes over 8,000 family leaders and sophisticated advisors in 25 countries who utilize FOX's resources to advise families each year. For more information about FOX, please email us at email@example.com or visit www.familyoffice.com.