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Family Offices Diversify Holdings; Cyber Attacks A Worry

Editorial Staff

1 May 2024

Family offices are diversifying their investment portfolios, and nearly 80 per cent of them work with external investment advisors, according to a survey by JP Morgan Private Bank.

The study also sheds light on family offices’ approach to cybersecurity.

The average portfolio has a 45 per cent allocation to alternative assets, targeting an 11 per cent return. Private equity is the most commonly held asset class at 86 per cent, and infrastructure is the least commonly held at 9 per cent.

The findings came from the bank’s Global Family Office Report. It conducted an online survey from October through December 2023 among 190 family offices worldwide, with an average net worth of $1.4 billion.

Asked about the enthusiasm for alternative investments such as private equity, the bank said family offices are more willing to take illiquidity risk to win long-term returns.

Last week, this news service spoke to firms, including , to discuss the noise over private markets/alternative investment, and concerns from organisations such as the International Monetary Fund about potential strains on the financial system.

Family offices also are consistently developing core, liquid portfolios. On average, these portfolios allocate 26 per cent to public equity and 20 per cent to fixed income and cash.

Cyber attacks are on the rise and family offices may be an easy target. Nearly a quarter of family offices surveyed reported exposure to a cybersecurity breach or financial fraud, yet only one in five noted that they have cybersecurity measures in place. With that in mind, 40 per cent of family offices reported that cybersecurity is a top gap for improvement.

Costs of operating a family office are rising, the survey found.

Large, established family offices with $1 billion or more in assets under supervision have average annual operating costs of $6.1 million, making management and strategic outsourcing a priority. Nearly 40 per cent of small and midsize family offices, with assets under supervision ranging from $50 million to $999 million, outsource investment management to some extent.

“Family offices are focused on managing costs, and recruiting and retaining top talent. Like any business, these two objectives may find themselves at odds amid staffing particular roles and services,” Elisa Shevlin Rizzo, head of family office advisory at J P Morgan Private Bank, said. “Outsourcing certain functions through a hybrid approach is becoming more common among family offices of all sizes.”

Preferences for staffing and executive roles differ between US and international family offices. US offices are less likely to have nonfamily members as chief executive/president and chief investment officer, with rates of 45 per cent and 71 per cent respectively, compared with 64 per cent and 90 per cent internationally. Furthermore, US offices are more likely to have unpaid family members as CEO/president, at 29 per cent versus 7 per cent internationally.