Attitudes to risk, governance practices, running costs, staffing and succession planning are all covered.
However, it’s where they put their money that interests me most.
At a very high level, the average asset allocation (which is the mixture of different asset classes, like shares and bonds) isn’t too dissimilar from that of a managed fund (in the growth category) or an individual investor with a comparable risk profile.
There are some key differences, though, with the most obvious being the 33% allocation wealthy family offices have to alternative assets.
There’s no official definition of what this category includes, but it’s generally thought to be anything outside of the traditional investment classes – shares, bonds (otherwise known as fixed income) and cash.
Real estate is often included in alternatives (it represents 11% of family office portfolios), but I’m going to focus on the other components, as many New Zealanders already have a real estate exposure.
The rest of the alternative assets bucket includes private equity, private debt, hedge funds, art and antiques, gold, commodities and infrastructure.
Private equity represents the lion’s share of this, at almost two-thirds of the alternative assets and 21% of the total asset allocation.
Private equity means holdings in unlisted businesses, as opposed to listed equities anyone can buy on the sharemarket.
This offers the potential for higher returns, as well as a much wider range of investment opportunities.
Fees are higher for these types of investments, while complexity and a much larger minimum investment need to be considered too.
Private equity can also be very illiquid, meaning you can’t sell your holding quickly or easily if you need to.
None of these is likely to bother the typical family office, and an extended investment horizon is usually a feature of their approach.
A key advantage the uber-rich have is the ability to take a much longer-term view.
They think and invest in a truly intergenerational manner, which means their approach is probably closer to that of the NZ Super Fund than an individual investor.
The other 12% is spread across the remaining alternatives, with private debt and hedge funds the biggest at 4% apiece.
This 33% allocation to alternative assets comes at the expense of listed equities, which average a 30% weighting.
Add these together and you’re close to the 70% weighting that the average growth fund has to equities.
Beyond that, the family offices have 19% in traditional fixed income or bonds and 6% in cash, close to our managed fund averages of 13 and 9% (according to sorted.org.nz).
The big difference is the hefty weighting to alternatives, which is dominated by private equity but also includes the likes of gold, infrastructure and private credit.
For those looking to take a leaf out of this book, these types of assets aren’t nearly as unattainable as they once were.
There are diversified alternative asset funds available across the local market, managed by global specialists and structured in a tax-efficient manner for New Zealand investors.
While few of us have billions to invest, we can still learn from those who do – especially when it comes to thinking long-term and looking beyond traditional markets.
Mark Lister is investment director at Craigs Investment Partners. The information in this article is provided for information only, is intended to be general in nature, and does not take into account your financial situation, objectives, goals, or risk tolerance. Before making any investment decision Craigs Investment Partners recommends you contact an investment adviser.
