Family offices are growing bolder by the year. The expansion of the private market has stimulated an unprecedented audacity throughout these institutions. Their widespread, strong engagement in the private market not only revolutionizes investment norms but also exhibits a high-risk appetite. 

An increased distribution of capital to private market investments implies an expanding risk appetite since private markets intrinsically entail high risk. This high risk can be attributed to specific characteristics of the private market which distinguish it from the public market. The private market is relatively illiquid, as converting private market investments into cash is not as feasible as doing so with public market investments such as, most basically, stocks.

Private market investments, moreover, demand more capital on average, and valuation methods for determining the quantity of capital are typically more intricate – and harder to execute successfully. Nevertheless, these challenges have not been hindrances, and instead, family offices are eagerly immersing themselves in the private market. 

Various surveys demonstrate family offices’ recent demeanor. RBC’s 2024 North America Family Office Report depicts trends in family office investing. RBC asked numerous institutions their current focal point for attaining office goals: 42% of family office respondents expressed “exposure to private markets” as their principal approach to fulfilling objectives.

Where exposure to private markets was reported as family offices’ most popular approach, family offices’ interest in less liquid, high-risk/high-return investments is growing; a predominant focus on private markets as opposed to public markets suggests a high-risk appetite. 

Separate metrics obtained from Citi Private Bank’s 2024 Global Family Office Survey similarly indicate family offices’ recent strong risk appetite. Citi inquired amongst family offices in which sectors either their optimism or pessimism lies – and to what degree.

According to the survey, family offices are most bullish on private equity: 47% and 41% of family office respondents expressed a bullish sentiment on direct private equity and private equity via funds, respectively. As family offices are most optimistic about private equity markets, family offices are leaning towards higher-risk investments. 

Furthermore, in determining their benchmark returns, family offices are dismissing risk: According to RBC’s report, 49% of family offices interpret benchmark returns in terms of “expected return from each asset class weighted by portfolio composition,” and 30% of family offices interpret benchmark returns in terms of “absolute return,” while merely 2% of family offices perceive benchmark returns in terms of “risk-adjusted return after allowing for portfolio volatility.”

The most popular system of setting benchmark returns in family offices excludes risk assessments; a minimal percentage of family office respondents reported risk-related concerns in setting their benchmark returns. 

As family offices convey renewed sentiments, objectives, and strategies, a strong inclination to operate in the private market exists. This penchant for private markets can be equated with a desire to undertake more risk. Nevertheless, family offices’ expanding risk appetite should not be misconstrued as a gateway to carelessness and imprudence.

Arguably, family offices will oblige themselves to act more cautiously in private markets, exercising more complex methods so as not to fall victim to the high-risk/high-reward essence of private markets – and instead to maximize reward.