Citigroup's family office clients are continuing to hunt for direct investments in private markets as they target bargains amid a shifting macroeconomic landscape.
More than half of investment firms for the world's superrich are looking for opportunistic direct deals based on attractive valuations, Citi found in a survey of 268 family offices representing $565 billion in net worth. Technology, real estate and health care were the most popular sectors for these investments, which involve buying directly into a company or asset rather than investing through a fund or other intermediary.
Allocations to direct investments across private equity and real estate made up about a quarter on average of the family offices' portfolios, according to Citi's 2023 Global Family Office Survey Insights.
Those firms looking to invest directly are now generally searching for less risky investments amid the macroeconomic uncertainty, often targeting companies generating cash in developed markets, according to Hannes Hofmann, global head of Citi's family office group.
"People are wanting more quality direct investments these days," he said. "Family offices tend to select one to three sectors they really understand for their direct investments and then often leverage fund managers to get exposure to other markets they're less familiar with."
Family offices, loosely regulated money managers for the ultrawealthy, are poised to take advantage of volatility resulting from elevated inflation and interest rates because they typically possess large capital bases and small teams that allow them to pounce on opportunities.
Andreas and Thomas Struengmann's family office led the purchase last month of the German hand-sanitizer maker Schuelke & Mayr, while the direct deals arm of AutoZone founder Pitt Hyde's personal investment firm bought a stake earlier this year in U.S. live event business ShowOps. Meantime, the family office for the multibillionaire dynasty behind Gucci-owner Kering agreed last week to buy a majority stake in a Hollywood talent-management giant.
Family offices mostly relied on their internal teams and their peers to source deals, while most of the firms usually sought to allocate between $1 million and $5 million per deal on average, Citi found.
Over half of the firms that responded to the survey also reported increased allocations to fixed income, while 38% cut their allocations to publicly traded stocks in a major shake-up of their portfolios. Nearly all of the family offices said they expected to see positive returns over the next year.
