America’s Richest Families Are Changing Up Their Investments. Here’s Why

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America’s richest families are shifting their investments for good reason. Here are the major changes they’re making to their portfolios and why. 

The wealthy are always in search of new investment opportunities to preserve and grow their fortunes. With the era of low interest rates at an end, some of the world’s richest families have made (or are planning to make) major shifts in asset allocation. According to the new 2023 UBS Global Family Office Report, 230 of the world’s largest single-family offices, which have a total net worth of $495.8 billion, are making significant changes to their investments. Here’s why.

Higher interest rates

There has been a big change in investor preferences, with a move away from private equity and toward fixed-income investments. Due to the Federal Reserve’s aggressive rate hikes, short-term bond yields are exceeding 5%, leading a third of individuals surveyed by UBS to include such debt in their portfolios.

Additionally, close to half of the respondents have intentions to add substantially or moderately to their fixed-income investments in 2023 and beyond.

According to a recent Global Family Office Report by Blackrock, more than half of the 120 surveyed offices announced that they have already opted for safer investment options such as fixed income and private credit due to the current market environment.

Reduce exposure to private equity

Family offices in the U.S. are shifting their investment strategies when it comes to private equity exposure. While their overall allocation to alternatives has remained steady, direct private equity exposure has taken a sharp decline (from 24% to 14%).

Instead of investing in riskier individual private equity companies, family offices are now favoring private market businesses that have already grown to a certain point. Leading family offices are also diversifying their portfolios through investments in private equity funds, private debt, and infrastructure.

Increase liquidity

The wealthiest families in America were accustomed to the convenience of low interest rates and having access to cheap credit. However, with interest rates on the rise, many are placing a higher priority on liquidity.

This means that instead of placing their money in long-term investments, such as bonds and real estate, they are opting for short-term, liquid investments like cash. By doing this, they are able to quickly pivot between different regions, sectors, and durations in response to rapidly changing conditions.

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Reduce exposure to real estate

There is a growing sense of caution when it comes to investing in real estate. Many family offices are also looking to reduce exposure to real estate this year. Higher interest rates and some softness in the property market have contributed to this trend, particularly in commercial real estate.

Looking further ahead, however, around one-third of family offices plan to increase their exposure to the property sector once capital becomes more readily available and valuations are lower.

Increase exposure to emerging markets

Family offices are increasing their investments in emerging market equity, particularly in light of China’s reopening to foreign investments and a predicted peak in the U.S. dollar.

Although almost half of their assets are currently allocated to North America, a significant number of family offices are looking to diversify their portfolios by increasing their exposure to Western Europe.

This comes as a surprise, given that allocations to Western European markets have not seen a significant increase in several years.

America’s richest families are changing up their investments, and they’re doing it for good reasons. The shift toward fixed income and private credit offers less risk than private equity, while more mature private businesses offer the potential for capital appreciation and diversification.

While this may not directly affect you, it is important to take note of these changes and consider them when making your own investment decisions. Diversifying your portfolio and seeking safe investments is key to preserving your wealth in the long run. Make sure you regularly review your investments and seek expert advice when needed.

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