Family Office Investment Trends: More Equities and Cash

Family offices are becoming more invested in U.S. public equities and cash, according to Fidelity’s 2023 Family Office Investment Study, which surveyed 83 single family offices with a total net worth of $432 billion.

“We have been seeing with asset allocation and portfolio construction that public equities and cash allocations have been increasing,” says Kristin Salisbury, senior vice president, Family Office for Fidelity Institutional Wealth Management Services. One possible reason: Although families’ individual investment goals vary, some may be anticipating risks in the investment arena in the next year or two, and they want to have cash available to take advantage of any disruptions in the market.

Allocations to U.S. equities rose from 26% in 2018 to 37% at the end of 2022. Cash allocations increased from 10% to 13% over the same period, while hedge fund allocations dropped from 10% to 4%.

“We have seen private credit also becoming more of a focus, and hedge funds losing some popularity,” Salisbury says.

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The study also looked at other issues that affect family offices’ investment strategies. For example, the family offices that participated have 2.4 employees, on average, dedicated specifically to investing. The small team size means the employees cannot be specialists in every type of investment.

“They create a team of generalists to go after more broadly where the opportunity is — they have generalists trying to determine what’s best for this family across many different investment opportunities,” Salisbury says.

When it comes to investment ideas, other family offices are by far the most common source of ideas, cited by 69% of respondents.

“Most family offices use their networks to help them source their investments. They surround themselves with and depend on a network of like-minded family offices,” Salisbury says. Other common sources of ideas include private equity fund managers (43%) and consultants (31%).

Nearly half of family offices include direct indexing investments in their portfolio, with an average allocation of 20%. Nine in 10 of those who use direct indexing are interested in tax management customizations.
Source: Fidelity Investments 2023 family office investment study

Another trend to watch: direct indexing, in which investors seek a desired market exposure for their portfolio by directly owning all or a subset of the individual securities of an index in the proportion needed to approximate the risk/return characteristics of the index. This allows them to tailor their account to their tax situation and individual preferences at the security level.

“Nearly half the offices are including direct indexing in their portfolios,” Salisbury says. Of those, 90% are looking for tax management customizations, and 60% cite tax efficiency as a benefit.

More information: Invested in the future: Insights from Fidelity’s 2023 family office investment study

About the Author

Margaret Steen

Margaret Steen is the editor of FO Pro, The Family Office Professional. Based in Silicon Valley, she has written for Family Business Magazine for more than 15 years.


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