What ultra wealthy are investing in now: New family offices report

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Private equity is still a hot target for family office investment, despite growing fears of portfolio risk from inflation and volatile market swings, according to the North American Family Office report 2022 from Royal Bank of Canada (RBC) and Campden Wealth, released today.

The report surveys 382 family offices from around the world – accounting for almost US$700 billion in wealth – with almost half (47 per cent) coming from North America that have an average family wealth of US$2 billion.

Private equity

Much of the rush towards private equity comes from its sizeable returns in the last year, which are particularly impressive in today’s markets and include a 26-per-cent return by venture capital, followed by private equity funds (22 per cent) and direct investments (21 per cent).

Indeed, this trend toward private equity is also likely to continue its growth as more family offices have already expressed a desire to get into private equity, or increase their presence, into 2023, with 46 per cent planning to allocate more to funds and 41 per cent to direct deals.

Investing in technology was on the rise among North American Family offices, particularly healthcare technology with 71 per cent invested there, followed by biotech at 62 per cent. Investment in artificial intelligence is also expected to get a bump next year, as 40 per cent of those already invested in the space plan on upping their allocations.

Sustainable investing

Climate change mitigation is certainly on the minds of these investors, as 77 per cent of family offices invested in the sustainability space target this theme. Overall, sustainable investment continues to be on the rise, with 37 per cent of North American family offices engaging in sustainable investing (up from 34 per cent) and it accounting for 20 per cent of the average portfolio, up from 18 per cent in 2021. This number is expected to grow to 31 per cent in the next five years.

“As part of a wider trend, family offices have been adopting sustainable investing at a rapid pace in recent years, and it has long been understood that the next generation is a key driver behind this,” explains the report’s author, Rebecca Gooch, senior director of research for Campden Wealth.

“We are in the midst of a major generational transition in which trillions of dollars are changing hands, and here is where we are really beginning to see the effects of this generation’s impact on society,” she explains.

“It is the emerging generation which is going to feel the effects of climate change more than any that came before it, and this has become a galvanizing factor among those who see sustainable investing, mixed with sizeable private capital, as a powerful vehicle to combat it.”

Returns and concerns

As far as investments go, North American family offices have done particularly well, garnering a 15 per cent return in 2021 – higher than their European counterparts (13 per cent) and those in Asia (10 per cent) – which is likely a result of the private equity returns. Eighty-six per cent of North American family offices also give philanthropically, up from the global average of 82 per cent.

But despite these investment trends, family offices are taking a more conservative and balanced approach to their portfolios these days over fears of growing inflation, leaning further into the safety of private equity, real estate, and commodities, according to Gooch.

“Given concerns over inflation, rising interest rates and a potential forthcoming recession, North American family offices are moving more towards a balanced investment strategy, bucking a trend from last year, where they shifted towards growth,” reports Gooch.

“That being said,” she continues, “the need for portfolio diversification is always at play, and family offices’ highest returns have come from their more adventurous investments, such as within venture capital, which garnered a considerable 26 per cent average return in 2021. In turn, while family offices are more careful about de-risking their portfolios this year, they are also likely to maintain a reasonable level of growth-oriented investments and to be on the lookout for opportunistic deals.”

Cybercrime

Given that 78 per cent of family offices surveyed reported risk management as their No. 1 priority over the next one to two years there is one area that needs to be highlighted: cybercrime.

Cybercriminals are coming after family offices at an increased rate, with 37 per cent of North American family offices reporting that they have experienced one or more cyberattacks over the last year, with 17 per cent reporting that it happened three or more times.

However, 31 per cent say they do not have a cybersecurity plan in place and 30 per cent report feeling insufficiently prepared to safeguard themselves from an attack. Only 17 per cent said they had a robust cybersecurity plan in place today.

The report called it noteworthy, “that merely 19 per cent feel ‘very prepared’, especially considering this research includes findings from families that collectively have roughly US$700 billion in wealth.”

The data for the report were collected between March and July 2022 and this year’s report included single and private, not commercial, multi-family offices (serving no more than eight families).

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