With all the uncertainties in the global economy, investors are watching what wealthy people in family offices are doing. And apparently, family offices are keen on investing in “unstoppable” trends.

These family offices are paying attention to sectors that are expected to thrive long-term despite cyclical downturns, according to global head of Citi Private Bank’s global family office group Hannes Hofmann. These sectors include healthcare and longevity, green energy and energy security, and generative artificial intelligence (AI) and digitisation. 

Most of these family offices have a longer investment time horizon of around three years, added Mr Hofmann, which means that they are willing to look beyond quarterly market movements. 

In the area of private market investments, family offices this year have turned cautious. They have scaled back on these riskier investments compared with, say, a year ago when many were still pretty active in early-stage tech investments, or investing in frontier markets such as Vietnam.

They are focused on cash-flow generating businesses in traditional sectors where they understand the business model, noted London-based Mr Hofmann, who was on a recent visit to Singapore. He said family offices are keen to deploy capital into private investments, but even for cash-flow generating businesses, they are watching for valuations to turn more reasonable.

Citi is one of the largest universal banks, with a market cap of around US$100 billion (S$133 billion).  Citi Private Bank has a presence in more than 50 cities.  Its family office clients number around 1,600 globally, with each family office averaging US$3 billion (S$4 billion) in assets.

A quarter of these clients are in Asia. Citi’s family office business in Asia grew around 40 per cent in the two years leading up to October 2022, and since then its client base has grown in the double digits. 

Mr Hofmann added: “Family offices are one of the strategic client segments that, as a firm, we are investing into… and it is a huge opportunity for Singapore, for Asia and Citi. And we want to play a strong role in Singapore.”

Family offices have become more professionalised and structured over the years, he said. Previously, the chairman or founder of the business would have an informal arrangement in which a few staff would help handle his personal wealth. Increasingly, there is a clearer separation from the operating business, with a separate team hired to handle the personal wealth.

This is a move that bodes well for Singapore’s growth as a family office hub, said Mr Hofmann, who hails from Austria and has been with Citi for nearly a year now.

Another trend, Mr Hofmann added, is the globalisation of family offices. As their operating businesses expand to other countries, it is natural for those that started with a US office, for example, to also open an office in Asia to be closer to the action. “This helps them better understand the investment and the operating environment the business is operating in,” he said. 

It also explains why family offices are increasingly interested in Singapore. “While there is definitely some home bias – Asian family offices tend to allocate more of their funds to Asia, or US family offices to the US – family offices around the world realise that a global approach will lead to superior investment returns.”

Many members of the family would also have studied overseas or married a person of a different nationality. Such dynamics contribute to family offices having a more international perspective, he said. 

Another trend is the interest in environmental, social and governance (ESG) investing among family offices. Citi has a Centre of Excellence to look at synergies between ESG and philanthropic giving.  

In the first quarter of this year, family offices worldwide moved some of their cash into global equities and, in particular, higher-quality bonds, Citi noted in its Family Office Investment Report, which analyses all the family office assets held at the bank.

They still kept cash, which includes deposits and money market instruments, partly due to “attractive deposit rates, market volatility and fears for the health of certain financial institutions”, Citi wrote.

Mr Hofmann emphasised that “what they’re not doing is hoarding cash; they are staying invested”. 

Although bond prices plunged in 2022 as interest rates rose, the market has since stabilised. Mr Hofmann said that the bond market has reset and that there are two-year bonds that offer a 6 per cent yield, which is attractive for some family office clients. 

In terms of equities, family offices also turned to non-US dollar assets in Japan and Europe, where valuations on a price-earnings basis looked attractive, with some being 40 per cent down from a year earlier.  

In the Asia-Pacific, family offices’ cash holdings fell in the first quarter of 2023 as they deployed cash into fixed-income investments. On average, most of the family offices reduced equity allocations, although the larger ones tended to put more cash to work in equities. 

For bonds, the increase was broad-based, Citi noted, with inflows into investment grade and sovereign bonds of developed markets.  

For equities, the family offices in the Asia-Pacific reduced their equity allocation but still had money in large-cap stocks in developed markets. There were also investments in technology and financial stocks.

There were inflows into emerging markets such as China, which was probably driven by its reopening. Buying was focused on consumer discretionary, technology and communication services sectors. There was a broad reduction in cyclical sectors such as industrials and materials, while trading within commodities was muted.