KKR released a new report from Henry McVey, the company’s chief investment officer of the balance sheet and head of global macro and asset allocation. Based on a proprietary survey of more than 75 CIOs who oversee more than $3 billion in assets on average, the report examined how family office CIOs are leveraging their longer-term focus and owner/operator mentality to create a sustainable competitive advantage.

“We hear the message ‘loud and clear’ that this segment of the market is changing — and for the better,” McVey said. “These investors are diversifying across asset classes, and as they mature, they are getting better at harnessing the value of the illiquidity premium to compound capital. They are also using better hedging techniques and increasing both their desire and ability to lean into dislocations, strengths that we believe will position them to be at the winner’s table at the end of this cycle.”

In the report, McVey notes several key parallels between the asset allocation objectives of KKR’s balance sheet and those of the surveyed CIOs, including a focus on compounding capital in a tax efficient manner to build wealth and investing behind key themes such as supply chain disruption, industrial automation, artificial intelligence and the ‘security of everything.’ Other key takeaways from the survey included:

• Family offices are allocating more to alternatives, with 52% of assets allocated to alternatives on average, up 200 basis points since 2020.
• Within alternatives, there is meaningful diversification, including a significant jump in allocations to real assets.
• Cash positions are still high at 9%, which further confirms KKR’s thesis that many investors are under-risked for today’s markets.
• Family offices are planning to allocate more to private credit, infrastructure and private equity at the expense of public equities and cash.
• There is a notable bifurcation in the asset allocation approaches between family offices set up within the last five years and those that had already scaled before COVID-19, with more seasoned family offices typically holding less cash and allocating more to private equity.
• There are pronounced regional differences in asset allocation. U.S. family offices allocated less to traditional private equity compared to counterparts in Latin America, Asia and Europe, while Asia-based family offices had relatively heavy allocations to real estate.
• CIOs are going against the grain to find value-based private market opportunities, especially in the oil and gas and industrial sectors.
• Geopolitics is eclipsing inflation as the main concern for CIOs, with more than 40% of respondents identifying geopolitics as the single most important risk today.
• There is growing concern that more resources will be required to support both the growth in assets under management and the increase in diversification across asset classes.