Alternative assets are becoming increasingly popular among family offices as they shift their investment strategies.

• Family offices worldwide will have 52% of their portfolios invested in alternative investments this year, according to a survey by KKR's family office. This is an increase from 42% in 2022.
• The percentage of cash holdings decreased from 11% to 9% between 2022 and 2023, while their publicly traded stocks holdings fell from 32% to 29%.
• Their favorite alternatives include private credit, infrastructure, private equity and commodities.

The original article was published in CNBC's Inside Wealth newsletter with Robert Frank, providing a weekly guide for high-net-worth investors and consumers. To receive future editions, subscribe and have them delivered directly to your email inbox.

Despite institutional investors cutting back on alternative investments like hedge funds and private equity, family offices are increasing their investments in the sector, a recent study shows.

In 2023, family offices had 52% of their portfolios invested in alternative investments, up from 42% in 2022. This growth in alternatives is coming at the expense of almost every other asset class, as their cash holdings fell from 11% to 9% from 2022 to 2023, and their holdings of publicly traded stocks fell from 32% to 29%.

Despite other allocators reducing their private investments, this group plans to increase exposure to private market investments in 2024 to capitalize on the illiquidity premium.

Family offices, private investment vehicles for wealthy families, are shifting their focus from public markets to privates and alternatives, including real estate, private equity, direct stakes, and ownership in private companies. With longer time horizons than other investors, family offices prefer assets that will grow over multiple generations and can invest in private businesses and alternatives that offer a premium for patient capital.

In the current market, family offices have a unique advantage over banks and traditional lenders, who are becoming more cautious about extending loans to companies. Similarly, many large institutional investors are avoiding private equity, venture capital, and other asset classes that have been negatively impacted by a lack of initial public offerings and acquisitions.

A CIO informed KKR that now is a good time to play offense because many others require liquidity, and their company doesn't. They are particularly interested in going direct, especially in sectors where they have previously owned businesses.

According to a survey, family offices plan to reduce their holdings of cash and equities this year and increase their investments in alternatives. Specifically, 42% plan to decrease their cash holdings, while 31% plan to reduce their equities. Their preferred alternatives include private credit (45%), infrastructure (31%), private equity (28%), and commodities (18%).

Family offices are focusing on data centers, logistics, and warehouses as post-pandemic investment themes, according to a report.

Currently, there are numerous family offices operating in the oil and gas sector, both in private and public markets.

"Exiting investors are creating tremendous opportunity through forced selling," the survey stated.