Close to three quarters (73%) of family offices plan to maintain or increase their exposure to alternatives over the next 12 months, according to Preqin’s 2023 Apac Family Office report.
Family offices view alternatives as a viable investment currently because of their uncorrelated returns with public markets, although, this belies a difference in approach depending on the asset class with some considered more suitable for this economic environment than others.
Generally speaking, family offices in Apac are more cautious about real estate and private equity portfolios, but have greater confidence in private debt and hedge funds.
Their caution regarding private equity is mainly due to concerns about stock market declines, with nearly half (46%) of family offices expecting their private equity portfolios to perform worse in the next 12 months compared with the previous year as a result.
The story is similar for venture capital as the low interest rates and high money supply that have boosted valuations in the past are no longer present. Almost half (48%) of respondents expect their VC portfolios to perform worse next year compared with the previous 12 months.
Instead, family offices are turning to private debt due to its diversification benefits and floating-rate nature in the face of rising interest rates.
The majority of respondents (55%) reported that their private debt portfolios met their expectations last year, while 36% said that they exceeded them.
Looking ahead, 64% of respondents expect private debt to perform better in the next 12 months, with 63% intending to increase their exposure to the asset class during the same period.
However, the family offices surveyed cited a number of challenges to investing in private debt such as a lack of expertise and limited access to high-quality private debt opportunities.
Hedge funds are also proving popular among family offices as they believe the asset class will continue to benefit from elevated volatility and dispersion in several markets. More than half (54%) intend to increase their exposure to hedge funds over the next 12 months.
Real estate was much less popular, with 42% planning to reduce their exposure to the sector, the highest among all asset classes, although this was unsurprising given the difficulties currently in commercial real estate.
Paradoxically, respondents singled out private equity as the asset class that presents the best opportunities over the next decade, chosen by 37% of respondents. Private debt came in second with 20% selecting it.
In terms of markets, respondents picked greater China as the region in which they saw the best opportunities over the next decade, chosen by 29%.
Surprisingly, the survey also revealed that only 37% of family offices had an ESG policy, while 43% did not and had no plans to adopt one. Several respondents said they felt they lacked the scale and resources to fully implement ESG in their portfolios.
