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Amid the market uncertainties of 2023, ultrarich families have been significantly increasing their investment allocations to fixed income and private equity, according to Citi’s annual “Global Family Office Report” published last Thursday. Hannes Hofmann, the global head of the global family office group at Citi Private Bank, highlighted this as “the biggest asset allocation change in the history of the survey.” Over half of the respondents, 51%, grew their exposure to fixed income over the past year due to rising interest rates. Furthermore, 38% of family offices increased private equity allocations, while an equal percentage reduced public equity allocations.
However, despite this move towards bonds for financial stability, the report found a cooling interest in long-term relationship building with heirs. In 2022, “fostering family unity and continuity” was respondents’ top priority overall. But in 2023, it ranked far below other items for family office leaders. The top priority for 74% of respondents was typical wealth management services; 55% said it was mainly investment management; and only 21% chose fostering family unity and continuity.
The report also found that primary concerns for most respondents were preserving the value of their assets (68%) and preparing the next generation to be responsible wealth owners (60%). The authors of the report noted that this lack of alignment is concerning as families’ main apprehensions reflect the need to prepare wealth for their family and their family for wealth.
The shift in priorities for clients made sense considering the macroeconomic uncertainties of the past year, Hofmann said. “In times of uncertainty, people need to focus more on how to preserve value for the family… The families themselves still want to think about how to educate the next generation, but it’s taken a bit of a backseat this year,” he explained.
The survey collected responses from 268 family office clients, with a total net worth of $565 billion, a majority of which hailed from outside North America. This was the highest participation rate in the history of the survey, indicating a growing need among family offices for insights into global trends.
On Wednesday, Citi Private Bank released additional information from its 2023 Family Office Survey. Amid market volatility and ongoing geopolitical challenges, family offices are shifting their focus toward wealth management and investment management. Looking forward, there is widespread optimism for investment returns in the year ahead.
In the Middle East, Citi has observed an increase in family offices establishing headquarters in the region, presenting significant opportunities for wealth transition to the next generation. Selim Elgen, MEA Head of Citi Private Bank, said that their clients in the region are at various stages of wealth transition to the next generation and they have a strategic focus on this opportunity.
The survey also found that 66% of family offices were seeking opportunistic deals based on attractive valuations, while 38% paused new direct investments due to economic uncertainty. Technology was the most popular sector for direct investment in every region apart from Latin America, where real estate was preferred.
The report concluded that while family offices’ philanthropic focus has yet to adapt to reflect the priorities of the rising generation, families are increasingly aware that a generational philanthropic transition is coming. They are seeking support to engage the next generation with 38% of respondents planning philanthropic leadership succession and 34% planning to integrate philanthropy as part of their broader wealth planning strategy.
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