Despite a further delay in US interest rate cuts and heightened geopolitical tensions, many family offices raised their allocations to fixed income and equities in the second quarter of 2024, while further reducing cash holdings, a new report finds.

Within equities, their preferences tilted towards developed large caps.  All regions except North America saw reduced allocations to small and mid-cap (SMID) equities, while exposure to emerging markets equities was down or flat, according to the Citi Private Bank Family Office Investment Report for Q2 2024, based on an ongoing study of the over 1,800 family offices the bank serves globally.

Within fixed income sub-asset classes, flows were mixed across all four regions (Asia-Pacific, EMEA, Latin America and North America) with no clear preference. Allocations to hedge funds rose during the period, while activity in commodities was muted.

In Asia-Pacific, family offices allocated more to both fixed income and equities on an equal-weighted basis as in the previous quarter. This pattern was even more pronounced for family offices with larger portfolios at Citi Private Bank.

APAC asset allocations (equal-weighted)

  APAC asset allocations (capital-weighted)

Source: Citi Private Bank Family Office Investment Report, Q2 2024

As to fixed income, net dollar flows in the region were positive once more, but at almost twice the rate of the first quarter of 2024. Developed investment grade and developed sovereign were together the largest contributors to the overall positive net dollar flow, the report says.

Most buying activity centred on US treasuries and high-quality financial credits within the short- to intermediate-duration range.

Dollar flows into diversified fixed income were also net positive, and at similar magnitude to those into developed investment grade and developed sovereign. A handful of large buy trades on select global income funds were largely responsible. But even excluding these trades, overall net dollar flow remained positive.

Allocations to developed corporate high yield rose again on a capital-weighted view. Buying was broadly diversified across financials, energy and real estate, while selling primarily involved select financial perpetuals.

Net dollar outflow from emerging market debt was mainly due to bond maturities. Excluding maturing bonds, net dollar flow was flat for the quarter. Buying and selling activities were broadly diversified across sectors.

In equities, net dollar flow in the region was positive for the third quarter running, with family offices increasing allocation on both an equal-weighted and capital-weighted basis, the report says.

Developed large-cap equities were the main driver of positive net dollar flow, at roughly twice the rate in the previous quarter. Buying and selling of individual equities and exchange-traded funds (ETFs) within the US technology sector dominated net dollar flow for the quarter. While this mostly focused on the United States, there was also buying interest in select Japanese stocks.

Developed small and mid-cap equities saw another quarter of net dollar outflow, with buying and selling activities broadly diversified across sectors and geographies.

On the other hand, emerging markets equities continued to see negative net dollar flow during the second quarter as in the first three months. Buying was broadly diversified across sectors, while selling was largely concentrated on the information technology, consumer discretionary, and communication services sectors. There was moderate buying interest in select India-focused funds in the region.

On average, family offices in the region hold a greater allocation to equities than anywhere else on an equal-weighted basis.