Family offices are pivoting from conventional asset allocations towards a heavier focus on alternative investments like private equity, real estate, and venture capital. J.P. Morgan's recent report indicates that nearly half of these portfolios now consist of alternative assets, with larger family offices taking the lead in this shift. 

This approach is driven by the desire for higher returns, reduced volatility, and better alignment with long-term wealth preservation and growth goals. These offices are capitalizing on their ability to invest in illiquid assets, which offer the potential for higher returns over time.

 By engaging more directly in private companies, family offices are leveraging their entrepreneurial expertise to achieve greater alignment with their wealth preservation objectives. While traditional public markets still hold a portion of these portfolios, the emphasis is clearly shifting towards alternatives that can better meet the complex, multi-generational needs of these families.

Finsum: With macro volatility looming alts could offer more risk cover and should be heavily considered. 

The July Consumer Price Index (CPI) data indicated that inflation is slowing, prompting speculation about a potential interest rate cut by the Federal Reserve in September.

 Ken Mahoney, CEO of Mahoney Asset Management, suggests that investors should focus on large-cap stocks, which have been performing well, particularly in comparison to small-cap stocks in the Russell 2000, where the majority of companies are unprofitable. 

He also expresses caution about sectors such as autos, airlines, and retail, noting a lack of enthusiasm in those industries. Keep in mind this combination of size and industry for the fall. 

Finsum: It’s important to keep an eye on leverage as interest rates fall this factor will greatly help the more levered companies. 

The growing focus on private equity among family offices is driven by their longer-term outlook and the flexibility of deal-by-deal investing, offering higher potential returns and greater control. This approach is increasingly appealing amid global economic instability, high interest rates, and lingering pandemic effects, as traditional investments often underperform in such conditions. 

Private equity can cushion portfolios against market volatility, consistently outperforming listed equities over the past two decades. Family offices pursuing a deal-by-deal strategy face challenges like high minimum investment requirements and the need for specialized expertise. 

Embracing alternative investments enables family offices to seek superior returns, greater diversification, and enhanced risk management while contributing to innovation and economic dynamism.

Finsum: If the hedge is the clear concern, maybe investors should lean into alternatives, but look at historical correlations. 

As custodians in the independent advisor market undergo mergers and consolidations, advisors are increasingly finding it challenging to secure a stable home for their clients' assets. Many advisors are opting to use multiple custodians to mitigate risk and increase efficiency, akin to diversification in investment portfolios.

However, frequent changes in custodial arrangements add layers of complexity and concern. This instability can lead to tedious processes like transferring accounts. The landscape is further complicated by the rise of niche custodians and specialized services targeting specific needs, such as real estate or gold investments.

The trend of using multiple custodians is driven by the need for diverse capabilities and the ever-evolving market dynamics, including mergers, competition, and new technologies.

Finsum: Getting a fuller picture of the technology and services offered by different custodians is a huge benefit. 

In the past five years, direct indexing has become a valuable tool for advisors to personalize client portfolios, addressing unique tax and asset allocation needs. Between April 1 and May 1, 2024, FTSE Russell partnered with RIA Channel to conduct a survey of over 600 advisors from various firms...[Read More]