What concerns single family officers – and how they want to invest


Concerns about inflation, more private equity investment and gaps in ESG implementation: A survey by Citi Private Bank provides insights into the portfolios, strategy and issues currently driving 126 different family offices. Half of the family offices manage more than $500 million in assets, the other half less than $500 million. 60 percent of the institutes participating in the study are located in the United States, 17 percent in Latin America, and about a dozen percent each in Asia and Europe.

Naturally, there are already differences between the generations of the family that manage their assets through the family office. Half of family offices are first generation and 35 percent are second generation. Only 15 percent belong to the third generation or older.

Number of employees in family offices by amount of assets under management.
Number of employees in family offices by amount of assets under management. © Citi Private Bank.

When asked what concerns family officials are currently most concerned about, nearly 80 percent cited inflation. In Europe in particular, inflation is a dominant theme, while in Asia geopolitical uncertainty is more important for family offices. The recession and the change in interest rates are further challenges. On the other hand, the energy crisis and market volatility and social unrest are less important.

Inflation is also a concern for Family officials, but not social unrest

Concerns also affect family office portfolios, with around three-quarters of family office workers surveyed saying that their respective portfolios have experienced losses since the start of the year. In most cases, assets were reduced by 0 to 20 percent. Only 22 percent of family offices were able to turn a profit.

Estimated return of the family office portfolio over the next 12 months by assets under management
Estimated return of the family office portfolio over the next twelve months by assets under management © Citi Private Bank.

Only half of family officers in Europe expect to achieve positive returns in the next twelve months. On the other hand, in Latin and North America, this figure is 90 and 85 percent, respectively. Family offices currently rely on the following asset allocation on average: 23 percent. shares and share funds, 20 percent. real estate, 15 percent. private equity and bonds. In addition, there are 12 percent concentrated portfolio positions and 10 percent cash. In contrast, hedge funds with 4 percent and commodities with 1 percent play only a minor role in structuring family office assets.

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Family offices rely on passive instruments and internal management

It is surprising that in family offices with assets below 500 mln. The proportion of USD, stocks, bonds and cash is on average higher than that of family offices with assets of more than 500 million. Larger family offices, on the other hand, tend to focus more on hedge funds, real estate and concentrated portfolio positions. Almost half of family offices have built up more than 20 percent passive exposure in their portfolios, while a quarter have between 10 and 20 percent.

A family officer's approach to each asset class
A family officer’s approach to each asset class © Citi Private Bank.

I also wonder what the average share of the family office portfolio is managed by the family officers themselves. As a result, 47 percent are managed internally, 42 percent by external investment managers, and 11 percent have a cash or liquidity position.

ESG does not participate in the investments of half of the family offices

More than half of family officers in 2022 added private equity duties, making it the most common change. This is followed by more real estate investments and opportunistic investments in stocks, which were still the most common portfolio adjustments made by family officials last year, with a share of 71 percent.

Percentage of direct portfolio investments and asset classes selected for direct investment by family officers

Real estate and information technology are preferred direct investments, while health and information technology are preferred equity investments. Even though the topic of sustainability has become relevant for all asset classes, 47 percent of family officers say they do not follow ESG principles in their investments. Another 13 percent do not know how or if ESG plays a role.

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