Geopolitical Risks Force Family Offices Into Liquid Alternatives, Cash

In the ever-evolving landscape of global finance, family offices are increasingly pivoting their investment strategies in response to rising geopolitical risks. According to BlackRock's latest Global Family Office Survey, a significant portion of these entities are moving away from traditional U.S. equities, opting instead for cash and liquid alternatives. This shift underscores a broader trend toward risk management and diversification, as family offices seek stability amidst global uncertainty.

Geopolitical Concerns Drive Strategic Reassessment

Geopolitical factors have become a central concern for family offices, with 84% of survey respondents identifying them as critical in their capital allocation decisions. The survey, which gathered insights from 175 single-family offices managing $320 billion in assets, reveals a collective shift towards a defensive investment posture. This strategic pivot is driven by a combination of factors, including new U.S. tariffs and broader economic uncertainties, leading to a reevaluation of traditional investment portfolios.

Rise of Liquid Alternatives

Liquid alternatives are gaining traction as family offices seek to enhance portfolio resilience. Currently, alternatives account for 42% of single-family office portfolios, up from 39% in 2022. This trend reflects a growing preference for asset classes that offer liquidity and diversification, such as private credit and infrastructure investments. Notably, 32% of family offices intend to increase their allocations to private credit, while 30% plan to boost infrastructure allocations over the next few years.

Infrastructure, in particular, is viewed favorably, with 75% of respondents expressing optimism about its prospects. This enthusiasm is grounded in the belief that infrastructure investments can offer stable, long-term returns, making them an attractive option in times of economic volatility.

Embracing Collaboration and Technology

As family offices navigate these complex challenges, many are turning to collaboration and technology to bridge gaps in expertise and enhance decision-making. The survey indicates that a significant number of family offices are open to partnering with external experts, particularly in private markets. A notable 57% of respondents reported challenges in reporting, 63% in deal-sourcing, and 75% in private-market analytics.

Outsourcing is also gaining popularity, with 22% of family offices either utilizing or considering an outsourced chief investment officer (OCIO) model. This approach allows family offices to leverage external expertise while maintaining strategic control over their investment portfolios.

The Role of Artificial Intelligence

Technology, particularly artificial intelligence (AI), is becoming an integral part of family office operations. Nearly half (45%) of the surveyed offices are more inclined to invest in technology firms developing AI solutions, and 51% are interested in opportunities that will benefit from AI growth. Moreover, 33% of respondents plan to deploy AI internally to enhance their investment processes, from risk management to cash-flow modeling.

Practical Takeaways for Family Offices

For family office professionals, these findings underscore the importance of adopting a proactive and flexible approach to investment management. Key takeaways include:

- Diversification and Risk Management: Emphasize diversification across asset classes to mitigate geopolitical risks and enhance portfolio resilience.

- Leverage External Expertise: Consider partnerships or outsourcing arrangements to fill gaps in expertise, particularly in private market investments.

- Embrace Technology: Invest in technology solutions, including AI, to streamline operations and improve decision-making processes.

In conclusion, the current geopolitical climate presents both challenges and opportunities for family offices. By strategically reallocating assets, collaborating with external partners, and harnessing technology, family offices can navigate these uncertainties and position themselves for long-term success.