Aeon: family offices in US and Europe turning to real estate

Family offices in Europe and the US are increasingly turning to real estate and to residential in particular as they search for yield against a background of rising macroeconomic uncertainty, according to new research published yesterday by Aeon Investments, the London-based investment manager.

Ben Churchill, Chief Operating Officer, Aeon Investments

“Family offices need to deliver stable and predictable income and that is driving increased interest in private debt, with residential real estate proving to be the most popular asset class to offer yield and capital preservation,” said Ben Churchill, chief operating officer, Aeon Investments.

The report, which is based on research and interviews with 100 senior investment managers and wealth managers working for family offices with a total of $98.4 billion in AUM in the UK, US, Germany, Switzerland, Italy and the Nordics, reveals a major shift in the investment strategies of family offices, showing the increasing use of alternative assets in general and illiquid assets including private debt, private credit and real estate in particular.

Nearly nine out of 10 (88%) respondents agree that family offices are increasingly diversifying into a wider range of asset classes with illiquid assets including private debt and real estate as the key components of the diversification drive.

Around 90% questioned expect increased demand from family offices for illiquid assets over the next two years.  The main motivation for this is their need to protect against macro uncertainty with private debt investments often offering strategies providing a floating rate coupon which has the potential to be a natural hedge against inflation.

Almost all (97%) family office professional investors interviewed agree that the impact of COVID-19 accelerated the integration of succession planning into long-term strategies.

This has translated into increased education for younger generations and the study shows they are having a bigger influence on investment planning. Nearly two out five (39%) family office executives strongly agree that younger family members are driving increased interest in sustainable investment and another 58% slightly agree.

Family offices also highlight the fact that private debt offers new investment opportunities and a growing array of assets as well as its role in the diversification of portfolios and access to ESG benefits in sub-asset classes in private debt.

The study found widespread agreement that the highest quality private debt instruments provide safety. Almost all (99%) questioned pointed to the combination of attractive yields and structural protections such as debt covenants and credit enhancement as offering a high degree of safety. That is being bolstered by the expectation of improved regulation in the sector – more than a quarter (26%) expect dramatic improvements in regulation for private debt over the next two years while 52% expect slight improvements.

Some 80% questioned expect family offices to increase allocations to private debt over the next two years with nearly one in 10 (9%) predicting dramatic increases.