Ultrawealthy families are pouring billions into private credit and real estate, but cutting back on early-stage startups

North American ultra-high-net-worth families are significantly reallocating their investment portfolios, pivoting away from high-risk early-stage startup investments towards more stable assets like private credit and real estate, which now collectively account for 29% of their holdings. This strategic shift, driven by a desire for steady income, improved liquidity, and portfolio de-risking amidst market volatility and elevated interest rates, reflects a broader 'risk-off' sentiment. Consequently, average return expectations for 2025 have notably decreased to 5%, down from 11% in 2024, as family offices prioritize stability over aggressive growth.

Analysis

North American ultra-high-net-worth families are significantly reallocating portfolios, pivoting from early-stage startup investments towards private credit and real estate. These stable assets now comprise 29% of the average family office portfolio, a share expected to grow further in 2025. This strategic shift is driven by a desire for steady income, improved liquidity, and portfolio de-risking amidst current market conditions.

The move towards private credit is particularly notable, reflecting its attractiveness due to higher interest rates offered by sub-investment-grade borrowers in an elevated rate environment. Real estate also remains a favored asset, with 75% of family offices holding it, showing strong interest in industrial/logistics and residential housing sectors. This preference highlights a broader focus on tangible assets with consistent cash flows.

Conversely, early-stage venture investing has fallen out of favor due to recent poor performance and disappointing year-to-date returns, making the long venture payoff cycle less appealing. This broader "risk-off" sentiment is evidenced by a significant drop in average return expectations for 2025 to 5%, down from 11% in 2024, with 15% of family offices now anticipating negative returns. This indicates a pronounced shift towards capital preservation over aggressive growth.

Key Decisions for Investors

• Investors should re-evaluate their current portfolio's risk exposure and liquidity profile, aligning with the broader "risk-off" sentiment and lower return expectations observed among ultra-wealthy families.
• Consider increasing allocations to private credit and specific real estate sectors like industrial/logistics and residential housing, which are favored for their stable income and diversification benefits.
• Exercise increased caution and scrutiny when evaluating early-stage venture capital investments, given reported underperformance and the availability of more attractive yields in less volatile asset classes.