UHNW family offices are eyeing alts diversification, says JP Morgan

New research from JPMorgan sheds fresh light on the practices of ultra-high-net-worth family offices around the world in investment management, governance, and succession planning.

J.P. Morgan Private Bank today launched its first Global Family Office Report, which provides data-driven insights gathered from an online survey conducted from October to December 2023, involving 190 family offices globally with an average net worth of $1.4 billion.

"J.P. Morgan has been working with family offices for more than 200 years, starting close to home with the creation of one of the first family offices, the House of Morgan, established in 1838," David Frame, chief executive officer of J.P. Morgan U.S. Private Bank, said in a statement.

The survey findings reveal that family offices are increasingly diversifying their investment strategies, with nearly 80 percent utilizing external advisors. Currently, portfolios have an average of 45 percent invested in alternative assets aiming for an 11 percent return. Private equity remains the predominant asset class, held by 86 percent, while infrastructure is the least favored at 9 percent.

Family offices are also focusing on creating robust, liquid portfolios that on average allocate 26 percent to public equity and 20 percent to fixed income and cash.

However, the risk of cyber-attacks is a growing concern. Approximately one-fourth of the family offices reported experiencing a cybersecurity breach or financial fraud, and only 20 percent have implemented cybersecurity measures. To address vulnerabilities, 40 percent identified cybersecurity as a crucial area for improvement.

Touching on operational costs, the report notes that larger family offices managing over $1 billion incur average annual operating expenses of $6.1 million, underscoring the importance of management efficiency and strategic outsourcing. Smaller and midsize offices often outsource investment management to manage costs effectively.

Differences in management structure between US and international family offices were evident, with US offices less likely to employ nonfamily members in top executive roles compared to their international counterparts. Additionally, US family offices more frequently have unpaid family members in leadership positions.

Preparing the next generation to manage wealth remains a concern, with nearly 30 percent of surveyed offices lacking a structured approach for transitioning wealth. In the US, engaging the next generation often involves philanthropy and mandates for professional experience outside the family business.

"The wealth and complexities of ultra-high-net-worth families has continued to grow over the last decade, which has led to a significant increase in the number of single family offices worldwide," said William Sinclair, head of the U.S. Family Office Practice at J.P. Morgan Private Bank.

“By surveying our clients, this inaugural report offers a valuable benchmarking tool for family offices to understand how their peers are addressing challenges they may face today, or in the future," he said.