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Family offices are bracing for higher inflation this year, with many buying real estate and alternatives as a hedge, according to a new survey.
When asked about this year’s biggest risk to their current portfolio and positioning, 64% of U.S. family offices cited interest rates and 61% cited inflation, according to the JPMorgan Private Bank Global Family Office Report.
Geopolitics is cited as the biggest risk among family offices around the world.
The report examined 333 single-family offices of ultra-high-net-worth private investment firms with an average net worth of $1.6 billion.
“Most clients are worried about two things right now,” said David Frame, global CEO of JPMorgan Private Bank. “They’re worried about inflation, they’re worried about geopolitics.”
Research shows that many family offices are turning to real estate and alternative investments, particularly private equity and hedge funds, to protect their portfolios. According to the survey, respondents who cited inflation as their top risk reported having 60% of their portfolio invested in alternatives and twice as much exposure to real estate and hedge funds.
While bracing for potential inflation, family offices are also rushing into artificial intelligence deals. AI remains a popular investment theme for family offices, with 65% citing it as part of their portfolio or as a future investment priority. Healthcare, infrastructure and cybersecurity were also popular.
Family offices are betting on both public and private markets. US family offices reported holding 40% of their investments in public equities, the largest asset class in their portfolios. It also said it holds 34% of private investments, including private equity, venture capital, private credit and real estate.
“There’s a lot of focus on AI and technology in general,” Frame said. “People absolutely believe that AI should be a core part of their portfolio. But that’s balanced against the concern that AI is also a core part of their portfolio.”
While retail investors are turning to gold as a potential hedge against inflation and a weakening dollar, family offices are more hesitant. Almost three-quarters (72%) of family offices surveyed said they had no gold exposure in their portfolios. Frame said the recent rise in gold prices has made gold increasingly risky for family offices that are not yet holders.
“At the moment, given the way gold is moving, they’re a little reluctant to add to their positions here,” he said.
Family offices continue to hold large amounts of cash and cash equivalents, the study found. Some respondents said they were holding cash in case of a recession and using liquidity to make opportunistic investments if asset prices fell. Some companies take advantage of high short-term interest rates to obtain high yields on cash equivalents. Recent interest rate cuts by the Federal Reserve have lowered short-term interest rates, but a spike in inflation could cause them to persist or even rise further.
“People who are worried about inflation would rather hold cash,” Frame said. “At some point, if inflation does materialize, interest rates may rise, and it pays to be patient with your cash.”
