Asset allocation for family offices: Modern approaches for more efficient management

• This article details various asset-allocation trends so that family offices can protect the capital they manage.
• The content is aimed at asset managers and financial advisers who run or work in a family office.
• FlexFunds offers an asset-securitization program to enhance the liquidity of investment strategies. For more information, please feel free to contact our experts.

The family office market is growing steadily. In fact, according to Imarc Group, it is estimated to expand at a 4.2% compound annual growth rate, reaching around USD 30 billion by 2033. For this reason, it is essential that asset managers closely monitor new asset allocation approaches, as these can influence the preservation and growth of the capital they oversee.

Sustainable and responsible investments

Today’s society is increasingly concerned with environmental stewardship and people’s well-being, which is why sustainable and responsible investments are now part of an asset allocation strategy.

These investments—categorized under environmental, social, and governance (ESG) criteria—seek to:

• Conserve and protect the natural environment. 
• Optimize and improve relationships with employees, suppliers, clients, and communities.
• Uphold corporate leadership standards and shareholders’ rights.

Alternative assets

Meanwhile, those responsible for a family office’s asset allocation often consider including various alternative assets to enhance portfolio diversification. 

• Private equity
• Real estate
• Hedge funds
• Securitized products

Let’s look at each in more detail.

Private equity

Private equity refers to stakes in companies that are not publicly listed. They are typically young firms with high growth potential and often founded on technology.

“Private equity has the potential to generate high returns, diversification, and the opportunity to invest in companies and sectors not available through public markets. Another advantage is the managing firm is able to execute a multi-year strategic plan without concern for quarterly earnings compared to public markets,” Schroders notes.

Real estate

The real-estate market has always been a family office favorite—and will continue to be. 

For this reason, the consultancy Knight Frank concluded that, although direct real estate holdings already represent 22.5% of a typical family office portfolio, more than four in ten plan to increase this allocation over the next 18 months.

Hedge funds

Hedge funds also play a role in family office asset allocation.

These pooled investment vehicles take investors’ capital and deploy it across various financial instruments—especially derivatives such as options and futures—to “beat the market.” 

“From 1990 to 2024, a period when traditional stock indices experienced substantial appreciation, hedge funds generally tracked with equity markets by managing portfolio risk that mitigated losses. During periods of significant stock declines – such as the early 2000s dotcom bubble, the 2008 financial crisis and the 2020 COVID-19 correction – hedge funds saw more stable performance,” reveal experts at U.S. Bank.

Securitized products

Family office capital managers may also choose to include securitized products in their asset allocation strategy.

These are exchange-traded products (ETPs) that have their own ISIN/CUSIP codes and are created via a securitization process carried out by firms like FlexFunds.

The appeal of ETPs lies in the fact that their underlying assets can be virtually anything—equities, bonds, commodities, real estate, etc.

Global diversification

Since family offices’ primary goal is to protect large family fortunes, one key strategy is global diversification. This practice reduces exposure to risks tied to any single country and has become a cornerstone of wealth management.

“Economic conditions and market trends can vary significantly across regions, and investing across borders can help mitigate the impact of local market fluctuations,” explain the specialists at SeedBlink.

Fortunately, diversifying across countries is easier than ever—thanks to exchange-traded products created through securitization.

For more information on FlexFunds’ asset-securitization program, please don’t hesitate to contact our team of specialists. We’ll be delighted to assist you!

Sources:

• https://www.imarcgroup.com/family-offices-market
• https://www.vanguardsouthamerica.com/en/product/about-our-products/esg 
• https://www.schroders.com/en-au/au/adviser/resources/understanding-private-equity/
• https://www.wealthbriefing.com/html/article.php/Family-Offices-Love-Real-Estate%2C-US-Leads-Wealth-Growth-%E2%80%93-Knight-Frank-Study?id=203804
• https://www.usbank.com/investing/financial-perspectives/investing-insights/diversification-with-hedge-funds.html
• https://seedblink.com/2024-08-19-portfolio-diversification-101-how-to-include-cross-border-investment-strategies-in-your-portfolio