Optimizing Family Office portfolios for the road ahead.

The investment landscape has changed considerably over the past two years, and many family offices are reassessing their asset allocations. Can they sustain their 6 – 8% (CPI+3%) long-run annualized return profile, and what adjustments might be required to do so?

In this paper, we model hypothetical asset allocations for three typical family office profiles using our most recent capital market assumptions (CMAs). We believe these models offer an insight into the kind of strategies that might be required to sustain past rates of risk-adjusted return in the new environment—but they are also a testing ground for some of the key investment themes that we are hearing from family offices as we head into 2024.

We think our models show that the themes investors are focusing on are largely the right ones. We also believe that these investment themes and hypothetical model allocations suggest more sophisticated and complex investment programs, making the selection of trusted asset management partners increasingly important.

Executive Summary

  • We hear five consistent investment themes from family offices coming into 2024:

1. Consolidation of equity market gains and holding high cash balances

2. More fixed income and an expanded universe for credit

3. Caution on U.S. large-cap equities and a preference for markets that have lagged recently

4. A search for more genuinely uncorrelated liquid alternatives

5. More private markets, with a focus on areas of capital and liquidity shortage

  • We see many of these themes supported in our hypothetical portfolio optimizations based on our most recent CMAs:

– For an aggressive “First Generation” asset allocation:

– More ex-U.S. equities; more alternatives; more private markets within alternatives; a move from standard hedge funds to uncorrelated markets

– For a balanced “Second Generation” asset allocation:

– More fixed income, tilted to high yield and alternative lending; a move from standard hedge funds to uncorrelated markets

– For a conservative “Third Generation” asset allocation:

– More fixed income, tilted to investment grade; a move from standard hedge funds to real-asset and income-generating alternatives

  • Our model portfolios add marginal risk-adjusted return to what the average family office has achieved historically, in our view.
  • For First and Second Generation investors in particular, these model portfolios imply greater sophistication and complexity: across fixed income, equity and alternatives we see several ways in which asset management partners could add value with active management solutions, analytics and other forms of support.
    Family Offices 2024: Adjusting to Post-Inflation Markets