Home / Analysis / Family offices shrink cash piles, eye hedge funds: Citi

Falling inflation, the prospect of interest rate cuts and a budding recovery in the world’s second-largest economy have seen family offices move out of cash to chase the returns on offer in equities and hedge funds, according to Citi Private Bank.

Family offices have continued to cut their exposure to cash as they chase riskier assets against a more constructive macro backdrop, according to the latest data from Citi Private Bank.

The analysis, based on investment assets held by 1200 of Citi’s single family office clients, found a “modest” renewal of interest in fixed income even as family offices continued to deploy more of their dry powder into equities and hedge funds.

“Positive momentum for risk assets continued in the second quarter of 2024, albeit somewhat more slowly than in the brisk first quarter,” the Citi report says. “A further easing of inflation, an interest rate cut from the European Central Bank, and hopes of stimulus-driven recovery in China were all helpful for investor sentiment. Admittedly, such factors were somewhat offset by the further postponement of US interest rate cuts and the initial reactions to election results in India, Mexico, and France.”

In APAC, net dollar flows into fixed income were positive and at almost twice the rate of the first quarter of 2024. Flows to equities were also positive – APAC family offices have a larger allocation to equities than any other region on an equal-weighted basis – with developed large cap equities the biggest beneficiary, and the US tech sector dominating flows within that. That trend held strong across most regions, except EMEA, where there was net buying of European stocks, while US technology and communication stocks saw outflows as family offices took profits following the strong market rally.

Meanwhile, APAC family offices showed “moderate buying interest” in certain multi-strategy and multi-manager hedge funds, though allocations retreated on a cap-weighted basis due to the distortionary effect of a redemption by one large family office. Hedge fund allocations increased in every region except Latin America, though that trend was mixed for family offices with larger portfolios, while private equity saw “significantly increased” allocations.

“Global equity registered another quarterly gain,” the Citi report says. “Within that, however, there were some changes of gear. In a reversal of the first quarter’s pattern, emerging markets trumped their developed counterparts. India, China, and Taiwan were major contributors to this, whereas Latin America’s performance went backwards. In developed markets, the UK, a long-time laggard, saw signs of revival, while Europe retreated.”