Family offices are increasing their allocation to private debt, according to a new survey from Aeon Investments, a London-based credit-focused investment company. Drivers for these locations are a combination of increased transparency in the alternative asset class and attractive yields, found the report.
Its study surveyed senior executives at family offices with more than $98.4 billion assets under management. Their research found that 80% expect family offices to increase allocations to private debt over the next two years with nearly one in 10 (9%) predicting dramatic increases.
The most attractive asset classes are forecast to be residential real estate and specialist areas of corporate finance such as commercial aviation, shipping and trade receivables, the study with family offices in the UK, US, Switzerland, Germany and the Nordic regions found.
Most attractive sectors for private debt
More than half (52%) questioned said their family office would dramatically increase allocations to residential real estate over the next 18 months while 51% will dramatically increase allocations to specialist areas of corporate finance.
Around a quarter (26%) plan to dramatically boost allocations to consumer credit such as student finance and auto credit, while 22% will dramatically increase allocations to commercial real estate.
What’s driving higher allocations to private debt?
Greater transparency in the private debt investment market is the key reason for increased allocations with 71% highlighting the attraction of transparency while 70% point to the yields available which compare favourably to traditional fixed income.
Innovation in the private debt investment market is also a draw for family office investors. Around 57% cited this as a reason for the family office they work for increasing their allocation to private debt, while 43% said it was because there is now greater choice in the market.
Aeon’s research found family offices are slightly more likely to allocate to private debt through private structures, with 60% choosing this route while 55% allocate through public vehicles. More than two-fifths (43%) say it is very important for financial institutions offering private debt to co-invest with the same underlying risk and fee structure.
Khalid Khan, Managing Director, Aeon Investments said: “Family offices need to deliver stable and predictable yields.”
That trend is driving their increased interest in private debt with residential real estate and specialist areas of corporate finance proving to be the most popular asset classes to offer yield and capital preservation, said Khan.
“Financial institutions, however, need to recognise that family offices are discerning when it comes to fee structures,” he added.