Marcus Baram
Sep 07, 2023
As the widely forecast recession fails to appear, high inflation starts to retreat and global equities pushed higher in the second quarter, family offices have responded by putting more of their cash to work with increased allocations to fixed income, private equity, real estate and hedge funds, according to Citi Private Bank’s latest Family Office Investment Report.
The second quarter saw family offices display both an appetite for risk and a desire for high-quality yields. Inflows occurred into fixed-income and alternative-asset classes. Family offices also slightly reduced their high allocations to cash during the period.
FIXED INCOME
For the second quarter running, fixed-income allocations increased. On an equal-weighted basis, the average allocation rose from 21% to 21.9%, and 14.7% to 15.5% on a capital-weighted basis. Family offices continued to favor high-quality debt, with developed investment-grade bonds seeing net dollar inflows. High-quality fixed income not only provides potential diversification to an investment portfolio but also can be an important source of income. Most of the activity within investment-grade bonds centered on government issuances and financials. This is in line with Citi Global Wealth’s tactical view on bonds. Investors have been locking in attractive fixed-income portfolio yields for five to six years, at levels much higher than estimated cash yields over the same horizon. Activity was mixed in high-yield and emerging-markets fixed income — except for Asia, where high yield saw slight positive net dollar flows. The other regions had muted activity in this subasset class.