Ultra-Rich Investors Shifting Towards Alternative Assets
A recent study from BlackRock reveals that ultra-wealthy investment firms are increasingly turning to alternative assets, including real estate and venture capital. Family offices have boosted their average portfolio allocations to alternatives to 42% in recent months—an increase of 3 percentage points from the previous year. This shift reflects a notable change in how these firms allocate their capital.
Research indicates that nearly a third (32%) of family offices plan to up their investments in personal credit this year. Infrastructure is the next most popular asset class, with 30% of those surveyed intending to invest more through debt or equity. This survey included 175 family offices managing over $320 billion, conducted between March 17 and May 19.
While 12% of respondents indicated they would decrease their allocation to funds or direct investments, private equity maintains a positive outlook. About 30% of those surveyed expressed optimism about this asset class for the year, while 22% adopted a more pessimistic view.
According to Armando Senra from BlackRock, family offices continue to invest more in private equity but are diversifying their portfolios to include more private credit and infrastructure. “Private equity is still a key player in our portfolio,” Senra noted, emphasizing the desire for diversification driven by various factors.
Liquidity has become a significant consideration, as slower exit strategies mean private equity investors may face longer waits for returns. Senra also highlighted the lower-risk appeal of infrastructure investments, noting that these can yield “private equity-type returns with significantly lower risk.” Three-quarters of survey respondents reported feeling optimistic about infrastructure.
This sector also provides an avenue for family offices to engage with the AI boom. “AI demands substantial infrastructure,” Senra remarked, pointing to the growing need for data centers and upgraded energy grids. In a notable move, Jeff Bezos’ family office backed a $155 million seed round for Atlas Data Storage, a company using DNA-style systems for more efficient and cost-effective data storage.
Regarding private credit, some family offices are cautious. While 51% of participants expressed optimism about private credit, 21% had a more negative outlook. This influx into private credit has raised concerns about borrower quality and potential defaults during a recession.
Senra acknowledged that increased attention is natural when asset classes gain popularity. He said, “When enough classes draw a lot of attention, we need to distinguish between experienced managers who can navigate different market environments.” However, 62% of respondents favored special situational debt, typically involving companies in distress or restructuring. Direct lending was the second most preferred category in private debt, with the report suggesting that private credit can offer greater investor protection than private equity.
