Patience is the name of the game right now for family investors — but that won’t be the case for long.
“Generally, what we’re seeing is that people are waiting out a level setting of rates,” said Casey Whalen, chief investment officer and head of Lazard Family Office Partners. On Wednesday, the U.S. Federal Reserve raised interest rates by a quarter of a percentage point.
“We don’t make bets on rates, but we hope that we’re closer to the end of hikes,” Whalen said. “Investors are looking to get more clarity.”
Family offices are typically more nimble and have different risk tolerances than their institutional peers. While they may be holding off from making any major investment decisions right now, they are still assessing potential investment opportunities.
These span asset classes, although private debt and real estate are areas of interest right now, experts say. And family offices are also looking to go global with their new allocations.
“The opportunity set is getting really exciting,” Whalen said. “It’s been decades-plus where it didn’t really matter if you were disciplined or undisciplined. As rates kind of continue to migrate up, you’re starting to see different levels of dislocation across all markets.”
Lana Callahan, managing director investor relations at Apex Invest, said by Zoom that her family office clients are showing significant interest in private debt. She noted that these LPs are looking for investment managers that are larger, and that made it through the 2008 financial crisis.
“They’re investing in that flight to familiarity,” Callahan said.
For Lazard’s clients, Whalen said that her team is focused on heavily collateralized senior secured private debt strategies, which are becoming more interesting in the current interest rate environment. Lazard is staying away from the more highly-levered strategies, though.
Real estate, too, is starting to see market dislocations. Callahan reported that family offices are pivoting away from student housing investments and instead looking into affordable housing investment opportunities.
More generally, family offices are looking abroad for opportunities.
“We’re really focused on Asia and in particular Japan, which we think is really interesting,” Whalen said. “They were a little delayed in recovery to Covid because they got vaccines later, but they had higher uptake. The recovery is there and they’re almost moving into growth mode.”
Institutional Investor previously reported on growing investor interest in Japan, which for years has been plagued by an aging population and low share prices. Times are changing, as policy shifts and improving valuations are offering investors diversification and exposure to Asia.
“There’s real change going on in Japan,” Whalen said. “We’re pretty focused on in the public equities side and also that vantage point in the hedge fund space.”
Investor views on China, meanwhile, remain mixed. Lazard sees the region as compelling, but stockpickers “have to be careful” in that region, Whalen said.
Callahan noted that while her clients are taking manager meetings and talking a lot about investing in China, they haven’t yet made the move to do so. “Previously I saw my family office clients investing in U.S. investment managers,” she said. “They’re trying to expand location-wise.”
And family offices are built to do so — compared to many of their peers, these institutions have fewer governance hurdles to jump through to get unique deals done.
“Families are uniquely positioned in that they tend to be able to do un-institutional-oriented investments,” Whalen said. “We sit at this interesting V where we can source family ideas but we can apply institutional diligence to that.”
