A first study of global family offices by BlackRock shows rising inflation fears, expanding allocations into alternatives, and high equity valuations are some of the issues keeping family offices up at night.

The inaugural Global Family Office Survey by BlackRock shows that despite the difficult climate, only a quarter of family offices intend to make material changes to their asset allocation, largely due to their long-term investment approach. Appetite for alternatives remains strong, with over half of FOs planning to increase their exposure to private equity as their asset class of choice. Sustainable investing is another big draw, with three-quarters planning increased exposure there.

The survey by the world’s largest asset manager is a good barometer of where asset allocations are changing for global family offices and where markets are stretching investment decisons. The poll conducted among 185 global FOs in July and August last year found that managers were most worried about replacing fixed income allocations, with equity valuations and liquidity issues being their other two top concerns.

As investors begin a second year of grappling with the pandemic, inflation rises loom as the initial deflationary shocks have been replaced by extraordinary fiscal and monetary stimulus that could go into overdrive if the Democrats win both Georgia Senate seats, as the count suggests, giving investors further pause.

FOs allocate a third on average to alternative assets, shown by BlackRock, with 10 to 25 per cent of that going into private equity. Half of FOs polled said that they would be upping their private equity exposure to weather current markets.

Attitudes are also shifting in private debt. Historically, private debt has accounted for less than 10 per cent of portfolios but two-thirds of private offices now say that they intend to increase their allocation because of the potential higher yields that dislocated markets can deliver.

Hedge funds, similarly, are riding high again, with more than a third of FOs intending to up exposure there, again based on better potential yields in a more volatile environment and as a possible replacement for fixed income allocations, BlackRock said.

The US asset manager believes that the long-lasting impact of the pandemic on growth, interest rates, and corporate fundamentals will lead to structural shifts across asset classes, something that FOs need to watch.

“Even long-term investors need to consider the resilience of their portfolios and ensure they are positioned to navigate current markets and protect wealth," Sheryl Needham, managing director and head of EMEA Family Offices at BlackRock, said.

FOs also no longer see sustainable investing as a compromise on returns. Over three-quarters (80 per cent) surveyed have some form of sustainable investment exposure. These divide across 34 per cent relying on exclusion policies; 56 per cent using specific sustainable strategies; and 38 per cent adopting sustainability as a key part of their risk assessment, the survey found.

Most agreed that the COVID-19 crisis has only sharpened their interest in sustainable investing and many registered far stronger awareness of the needs of society, especially local communities, and the role family offices can play.