Household places of work are extra optimistic than they’ve been for years, in keeping with a survey

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Family offices are more optimistic than they have been in years, investing their money in stocks and alternative investments as the Fed begins to cut interest rates, according to a new survey.

Almost all family offices (97%) expect positive returns this year, and nearly half expect double-digit growth, according to Citi Private Bank's Global Family Office Survey 2024.

“This is the most optimistic outlook we have ever seen,” said Hannes Hofmann, head of the family office group at Citi Private Bank, which has been conducting the survey for five years. “What we are clearly seeing is an increase in risk appetite.”

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The survey is the latest sign that family offices – the private investment arms of wealthy families – are now betting more aggressively on market and valuation growth after two years of hoarding cash and bracing for a recession.

Private equity is particularly popular. Almost half (47 percent) of the family offices surveyed plan to increase their holdings in direct private equity in the next twelve months. This is the highest proportion of all investment categories. Only 11 percent plan to reduce their PE holdings. Private equity funds come in second place, with 41 percent planning to increase their holdings.

As interest rates fall, demand for equities is also growing among family offices. More than a third (39 percent) of family offices plan to increase their allocation to equities from developed countries, especially the USA, while only 9 percent plan to reduce their equity holdings. This is after 43 percent of family offices increased their holdings in listed equities last year.

Listed securities remain their largest holding among major asset classes, with equities making up 28 percent of their typical portfolio, up from just 22 percent last year, according to the survey.

“Family offices are taking money out of cash and investing in public equities, private equity, direct investments and also fixed income securities,” Hofmann said. “But primarily it is going into risky investments. This is a very significant development.”

Fixed income has become another favorite of family offices as interest rates begin to fall. Half of the family offices surveyed increased their fixed income exposure in the past year—the largest share of any category—and a third plan to increase their fixed income investments even further this year.

With the S&P500 Family offices, up nearly 20% so far this year, expect 2024 to end with strong returns. Nearly half (43%) expect returns above 10% this year. More than 1 in 10 large family offices – those with assets over $500 million – expect returns above 15% this year.

Of course, their optimism also comes with risks. When asked about their short-term concerns about the economy and financial markets, more than half cited interest rate trends. US-China relations were ranked as their second biggest concern, and market overvaluation came in third. According to Citi, the survey was the first time since 2021 that inflation was not the biggest concern for the family offices surveyed.

One of the big differences between family offices and other private investors is their appetite for alternatives. Private equity, venture capital, real estate and hedge funds now make up 40% of the portfolios of the family offices surveyed. This number is expected to continue to rise, especially as more family offices invest directly in private companies.

“This is a significant allocation that shows that family offices as asset managers invest for the long term, are highly qualified and have a long-term perspective,” said Hofmann.

One of the most important themes for their private investments is artificial intelligence. The family offices of Jeff Bezos and Bernard Arnault have both invested in AI startups, and repeated surveys show that AI is the No. 1 investment theme for family offices this year. More than half of the family offices surveyed by Citi have invested in AI in their portfolios through public equities, private equity funds or direct private equity exposure. Another 26% of family offices are considering increasing their AI investments.

According to Hoffman, AI has already proven to be different from previous investment innovations such as crypto or environmental, social and governance, or ESG. Only 17 percent of family offices invest in digital assets, while the vast majority say they have no interest.

“AI is a topic that people are interested in and investing real money in,” Hofmann said. “With crypto, people were interested in it, but they invested some play money at best. With ESG, we find that a lot of people say they're interested in it, but a much smaller percentage of family offices are actually investing real money in it.”