Family Offices Increase Allocations to Alternative Investing

Family Offices Increase Allocations to Alternative Investing

Family offices, which manage the wealth of high-net-worth individuals (HNWIs) and ultra-high-net-worth individuals (UHNWIs), are turning to alternative investing to diversify their portfolios and enhance long-term returns.

Traditionally, family offices have relied on public equities, bonds, and real estate to preserve and grow wealth. However, in recent years, there has been a notable shift toward alternative assets such as private equity, venture capital, hedge funds, and real assets like infrastructure and commodities.

This strategic pivot reflects a growing recognition that traditional investment avenues alone may not deliver the desired returns or risk mitigation in today’s market environment.

In this article, we explore why family offices are ramping up their allocations to alternative investments, the benefits they seek, and the emerging trends shaping this shift.

The Rising Role of Alternative Investments in Family Offices

According to recent surveys from UBS and Campden Wealth, alternative investments now account for 40–50% of the average family office portfolio, a significant increase from previous decades. This trend is driven by multiple factors, including:

1. Market Volatility & Low Yields in Traditional Markets

2. Desire for Portfolio Diversification

3. Higher Returns from Private Markets

4. Long-Term Wealth Preservation

5. Increased Access to Exclusive Investment Opportunities

Let’s explore these factors in greater detail.

1. Market Volatility & Low Yields in Traditional Investments

Over the past decade, family offices have faced a low-interest-rate environment and high stock market volatility, making it difficult to achieve stable returns from traditional investments. Government bonds, once a cornerstone of conservative portfolios, have offered historically low yields, while public equities have experienced increasing volatility due to geopolitical uncertainties, inflation concerns, and economic downturns.

Why Alternative Investments?

Alternative assets like private equity, real estate, and hedge funds are less correlated with public markets, providing family offices with a hedge against stock market fluctuations. By allocating more capital to these assets, they can reduce overall portfolio volatility and create more stable, long-term returns.

2. Diversification: Reducing Risk Across Asset Classes

One of the fundamental investment principles followed by family offices is capital preservation, ensuring wealth is maintained for future generations. To achieve this, diversification is key.

Traditional portfolios rely heavily on a mix of stocks and bonds, but adding alternative investments introduces new sources of uncorrelated returns that can reduce overall risk.

Family portfolios are naturally risk-averse because there is an entire family legacy at stake, not just an individual portfolio. The whims of one family member cannot adversely affect entire generations.

Diversification Through Alternatives

• Private Equity & Venture Capital – Exposure to high-growth startups and private businesses

• Hedge Funds – Active strategies that capitalize on market inefficiencies

• Real Assets (Real Estate, Infrastructure, Commodities) – Tangible assets with intrinsic value

• Cryptocurrencies & Digital Assets – Emerging opportunities in blockchain technology

By investing across these categories, family offices create resilient portfolios that can withstand market downturns.

3. Private Equity & Venture Capital: Higher Growth Potential

Family offices have been aggressively increasing allocations to private equity (PE) and venture capital (VC), recognizing that these asset classes often generate higher returns than public markets.

Private Equity: Long-Term Growth & Value Creation

Private equity investments involve acquiring ownership stakes in private companies, often with the goal of improving operations and driving long-term value before exiting via IPOs or acquisitions. With holding periods averaging 5-10 years, private equity investments align well with family offices' long-term investment horizon.

Venture Capital: Early-Stage Innovation

Venture capital provides exposure to early-stage startups with high growth potential, particularly in technology, healthcare, and fintech. Many family offices are increasingly acting as direct investors, bypassing traditional VC funds to gain better control over investment decisions and reduce management fees.

Notable Trends in PE & VC Allocation

• Direct investments and co-investments with established funds

• Focus on impact investing and ESG-focused startups

• Greater interest in technology, AI, and biotech companies

These investments provide potentially outsized returns, often outperforming public markets in the long run.

As the general trend runs toward more alternative investments and modern fields of valuables, it makes sense that family offices would venture there as well.

4. Real Assets: A Hedge Against Inflation

With rising inflation and currency devaluation risks, family offices are turning to real assets like real estate, infrastructure, and commodities as a hedge.

Why Real Assets?

• Inflation Protection – Hard assets typically appreciate over time, keeping pace with inflation.

• Stable Income Streams – Real estate and infrastructure investments generate consistent rental or operational income.

• Long-Term Value – These assets provide long-term capital preservation and appreciation.

Key Sectors for Real Asset Investments

• Commercial Real Estate: Office spaces, multifamily housing, and logistics hubs

• Infrastructure: Renewable energy, toll roads, and data centers

• Commodities: Gold, silver, and agricultural assets

Many family offices own real estate outright or invest through real estate investment trusts (REITs) and private real estate funds to gain exposure without direct management responsibilities.

5. Access to Exclusive Investment Opportunities

Unlike retail investors, family offices have access to private deals, direct investments, and exclusive alternative funds that provide superior return potential. This is the perfect opportunity to diversify an investment portfolio with ample opportunity for targeted and exclusive alternative investing.

Advantages of Exclusive Investment Access

• Co-Investing with Institutional Funds – Many family offices collaborate with established PE/VC firms on lucrative deals.

• Direct Business Ownership – Some prefer acquiring controlling stakes in private companies.

• Participation in Private Credit & Debt Markets – Lending to businesses at attractive interest rates.

This exclusive access allows family offices to bypass traditional investment fees, improve liquidity, and tailor investments to their long-term objectives.

Challenges & Considerations

Despite the benefits, increasing allocations to alternative investments comes with challenges:

• Illiquidity – Many alternatives require long holding periods before realizing returns.

• Complexity – Managing and evaluating private investments demands expertise.

• Regulatory Risks – Compliance requirements can be more stringent in private markets.

To mitigate these risks, many family offices hire dedicated investment teams or work with specialized asset managers to oversee their alternative investment strategies. It is always imperative to recognise that many people are affected by the investment decisions taken.

The wealth management evolution

The growing shift toward alternative investments among family offices highlights a broader trend in wealth management evolution. Faced with low yields, market volatility, and inflation concerns, family offices are actively seeking higher returns, diversification, and long-term wealth preservation through private equity, venture capital, real estate, and real assets.

Alternative investing expansion

As access to alternative investment opportunities expands, we can expect family offices to further increase allocations in pursuit of superior risk-adjusted returns. The key to success lies in strategic asset selection, expert management, and a long-term investment horizon—ensuring that wealth is preserved and continues to grow across generations.

With the continued rise of alternative investments, family offices are positioning themselves to thrive in an increasingly complex and dynamic financial landscape.

‍