A new report reveals that family offices are seeking higher returns by exploring investment opportunities beyond the stock market.

• According to the JPMorgan Private Bank Global Family Office Report, alternative investments make up 46% of family offices' total portfolios.
• Private equity, real estate, venture capital, hedge funds, and private credit are all examples of alternative investment options.
• Unlike stocks, which experience sudden fluctuations in value, private equity and private companies typically experience more gradual changes in valuation, reducing volatility.

A study reveals that nearly half of large family offices' investments are in private markets and alternatives, as they seek higher returns and lower volatility by moving away from the stock market.

According to the JPMorgan Private Bank Global Family Office Report, family offices have 46% of their portfolio invested in alternative investments, including private equity, real estate, venture capital, hedge funds, and private credit. On the other hand, the surveyed family offices had 26% of their assets invested in publicly traded stocks.

190 single family offices worldwide were surveyed in a study, with an average asset value of $1.4 billion.

Family offices in the U.S. with over $500 million in assets have more than 49% invested in alternatives, with 22% in public stocks, a study found.

The survey revealed that 19% of family office holdings were in private equity, 14% in real estate, 5% in venture capital, 5% in hedge funds, and 4% in private credit.

Private equity markets, direct deals, venture capital, and private credit are increasingly being dominated by family offices, which have grown exponentially in number and size in recent years. These private investment arms of wealthy families now manage more than $6 trillion in assets.

JPMorgan Private Bank's U.S. Family Office Practice head, William Sinclair, stated that although stocks and bonds are still significant for family offices, there is a growing trend towards alternatives for higher returns.

Family offices typically have a long-term investment horizon, with a focus on holding assets for 50 to 100 years or more, in order to take advantage of the "liquidity premium" that comes with patient capital. Unlike stocks, which can experience rapid fluctuations in value on a daily or hourly basis, alternatives such as private equity and private companies offer more gradual changes in valuation, helping to mitigate volatility.

"Sinclair stated that these clients are adopting a long-term perspective on their wealth and are willing to endure illiquidity. They are also recognizing investment possibilities beyond public markets."

Family office founders, who initially started as entrepreneurs and sold their businesses, now want to use their family offices to acquire ownership stakes in other private companies and utilize their experience to aid in the growth of these companies.

"Sinclair stated that JPMorgan is fortunate to work with 60% of the country's billionaires. This has led to companies seeking JPMorgan's clients to be on their board and cap table, alongside top venture capital and private equity firms."

Sinclair believes that the expansion of family office investments in alternatives will persist.

"He predicted growth in private credit and under-allocation in infrastructure, particularly in digital infrastructure, as many clients are building data centers that require significant power."

Historically, U.S. family offices had an average of 9% in cash and 10% in bonds on their other investments.

According to a survey, only 49% of family offices in the U.S. have a long-term target return for their portfolio, with a median return target of 8%.

Family offices employ a range of benchmarks to assess their investment portfolios, with over three-quarters of those surveyed utilizing benchmarks to evaluate their performance. Customized benchmarks are more commonly used by larger family offices, as per the survey.

Family offices under $500 million are increasingly outsourcing more functions to reduce costs, with 80% of them using external advisors for investment management, access to managers, trade execution, and portfolio construction, according to a report.

Family offices are increasingly seeking assistance from companies such as JPMorgan in protecting against hacking, with 40% of surveyed family offices identifying cybersecurity as their biggest capability gap and nearly 1 in 4 reporting having experienced a cyberattack.

"They're looking to us for help," Sinclair said.

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