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This version of the article first appeared on CNBC’s Inside Wealth Newsletter. This is Robert Frank, our weekly guide to Net-Worth Investor and Consumer. Sign up to receive future editions directly in your inbox.
According to a new study from BlackRock, Ultra Rich’s investment companies are increasingly investing in alternative assets such as real estate and venture capital. Family Office has averaged 42% portfolio allocations to alternatives in recent months, up 3 percentage points from last year, making significant changes to how its capital is invested.
Research shows that almost a third (32%) of detached house offices that planned to increase their personal credit allocation this year. The second most populous asset class is infrastructure, with 30% of respondents reporting that they intend to invest more in the sector through debt or equity. The survey voted on 175 family offices that oversee the total over $320 billion between March 17th and May 19th.
Though 12% of respondents said they plan to reduce their allocation to funds or direct investments, private equity still has positive momentum. When asked about the outlook for this year’s asset class, 30% reported optimism, while 22% said their attitude was pessimistic.
Armando Senra of BlackRock told CNBC that the entire family office is still investing more capital into private equity. However, they are spreading bets when it comes to private markets, which means an increase in private credit and infrastructure market share.
“Private equity remains a central figure in our portfolio,” said Senna, who leads the institutional business for asset managers in the Americas. “I think what you see is the desire to diversify for a number of reasons.”
Liquidity is an important factor, he said. This is because slowing the exit means private equity investors will have to wait longer for returns.
Senna also cited the low risk appeal of infrastructure investment. He said it could provide “private equity-type returns with significantly lower risk.” Three-quarters of BlackRock Survey respondents reported feeling bullish or optimistic about infrastructure.
This sector is also a way for family offices to invest in the artificial intelligence boom.
“AI has a huge infrastructure needs,” Senra said, noting the increased demand for data centers and improved energy grids.
In May, Jeff Bezos’ family office supported the $155 million seed round at Atlas Data Storage, a company that uses DNA-style systems to store data more efficiently and at a lower cost.
When it comes to private credit, some family offices are wary of hype. Fifty-one percent of respondents said they were optimistic or bullish towards private credit, while 21 percent reported pessimistic or bearish attitudes. The rush to private credit of capital has sparked concerns about the quality of borrowers and the number of default loans in the event of a recession.
Senna said that if asset classes are in a surge in popularity, attention is natural.
“Whenever there are enough classes to attract a lot of attention, I think we need to separate managers who have experience in different market environments,” he said.
However, 62% of respondents supported the special situational obligation. This usually extends to companies facing restructuring or stress. The second preferred private debt category was direct lending. According to the report, private credit can provide more investor protection than private equity.
