Real estate is set to benefit from a long-term switch to investing in alternatives for the family office sector.
Research based on the views of more than 130 family office investment managers, responsible for around $62bn (£50bn) assets under management, found that almost all agree that the sector is increasingly investing in alternatives and that the switch is a long-term trend.
Around 42% strongly agree with the view, according to the research from Ocorian, which provides services to high-net-worth individuals, family offices, financial institutions, asset managers, and corporates.
The alternative asset classes seeing the most benefit from the switch in allocations are likely to be real estate and private debt – the study found a third (34%) say their funds will increase allocations to real estate by 50% or more while 33% will make the same increase in allocations to private debt.
Family office investment managers said the strong performance of alternatives is the key reason for the switch, followed by the diversification benefits and increasing transparency in the asset class. Increased choice in the sector was the fourth most popular reason for investing ahead of inflation protection and the ability to provide regular income.
The research from Ocorian, which works with more than 60 family offices around the world, found funds are the most popular vehicles for investing in alternative assets. Around 77% said they are seeing growth in funds ahead of 56% who say they have seen growth in special purpose vehicles and GPLPs.
The data adds further weight to Ocorian’s view that family office investment managers expect to increase allocations to real estate in the next 12 months.
Ocorian head of family office at Amy Collins said: “As family offices look to diversify their portfolios and generate higher returns, there is a growing interest in alternative asset classes such as private equity, real estate, and hedge funds.
“Whilst these asset classes offer the potential for higher returns, they also require a higher level of expertise and specialised knowledge.”
The research found the EU is narrowly ahead of the UK as the jurisdiction seeing the most exposure to alternatives. Around 54% highlighted growth in the EU while 53% pointed to the UK. The Middle East was chosen by 38% ahead of Asia and the Americas on 32%.
Collins said: “The strong performance of alternative asset classes in the last few years makes the case for investing in the sector and family offices around the world are taking the opportunity as they continue to diversify their investments.
“The rise in the private capital model is changing the way investments and transactions are completed – they can use their own family office competitive advantages, which means they enact the transaction and then refinance it if they need to. They can also be much more flexible, with often just one person making the decision at the top.”
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