BOSTON, November 8-9, 2023 – In early November, more than 70 of our private client and family office leaders gathered in Boston for our Family Office Forum.
The two-day event began with welcome remarks from David Druley, CEO, and Samantha Davidson, President, in which they discussed the growth of our private client business and previewed where the firm is making investments for the future.
Gretchen Curry, Global Head of the Private Client Practice, then sat down with long-time client Jonathan Kraft, President of the Kraft Group, for a “Client’s Perspective Conversation,” exploring the Kraft family’s journey, including insights, experiences, and challenges the family has faced in solidifying its legacy.
The following day, our community heard from thought and industry leaders from across the investment spectrum.
Here are a few important takeaways:
The shifting market presents new opportunities for investors.
We’re in a new regime – stocks and bonds are no longer uncorrelated, bonds are an attractive asset class, and just seven companies are highly accountable for equity market swings. A catalyst is upon us, be it moves in inflation, interest rates, or earnings. Whatever it may be, it will set up investors with asset allocation possibilities for the next five to ten years.
The shifting market presents new opportunities across asset classes and geographies.
- In private markets, pricing is more attractive today so investors with liquidity can step in and take advantage. Secondaries are particularly attractive and can help mitigate J-curves. Further, some of the best vintage years have come out of “rough” market cycles.
- The overvaluation of the US dollar presents an interesting case for international and emerging markets. Across the board, private investors are in an advantageous position for manager access, upgrades, and fee negotiations.
- Public and private diversifiers are an important component of investment portfolios that family investors should thoughtfully incorporate into their strategic asset allocation and implementation. Higher volatility and heightened market uncertainty make now a compelling time to incorporate these strategies, and many liquid diversifiers are direct beneficiaries in this type of environment.
- With positive attractive yields for the first time in a long time, in fixed income, there’s an opportunity to revisit durations, re-underwrite and look at where on curve to be invested. There may be an opportunity to lake less risk because of attractive yields or seek higher quality lower-risk securities.
- Private credit represents a vibrant opportunity. Rising interest rates, a cutback in bank lending, and the potential for economic downturn has created a broad distressed opportunity. Strategy and manager selection are critical, particularly with private credit.
- The real estate industry is starting to accept that elevated interest rates will stay here for longer which will continue to have a negative impact on real estate values. As much as lenders are asked by the Fed to work with the borrowers, one can’t “kick the can” (for example, continue to extend the loans) indefinitely, so we are likely to observe some stress/distress in 2024—which could also lead to attractive acquisition opportunities for those with cash.
- Family investors agree that China is one of the most hotly debated topics at the table. While some investors are no longer seeking new opportunities, most everyone is living with at least moderate exposure to China through managers. With China equities down 9% this year and global equities up 11%, valuations are compelling for investors comfortable with an investment in China. The consumer, debt, and geopolitics are three issues defining the Chinese economy presently and they need to be actively monitored.
Advances in AI and life sciences, separately and in combination, are influencing the way we live and how we invest.
- Life sciences and biotech valuations have been challenged over the last 18 months. Nevertheless, the pace of life sciences innovation continues, and the emergence of novel modalities and new AI-driven capabilities have primed the space for continued breakthroughs. Big pharma continues to sit on record piles of cash and steady M&A activity has produced wins for companies with demonstrated strategic value. The opportunity set is strong, and in many cases well priced for both early-stage private and public managers with experience and technical skillsets. Additionally, the life sciences sector continues to offer the potential to drive idiosyncratic value regardless of broader market conditions.
- Generative AI has the power to transform existing companies and industries, with the potential to deliver tremendous value for incumbents and those at each level of the tech stack. Existing companies who can build generative AI into their product or business model at the software/application level to gain efficiency, expand their customer base, or deliver new products have an immediate window of opportunity to gain serious market share.
Don’t reduce governance to decision making.
Governance is a critical part of any family’s investment program, yet many families reduce governance to simply decision making. By also incorporating authority and oversight, families can foster better alignment between their goals and their investment strategy and ensure streamlined communications and transparency for all family stakeholders. As many clients shared during Charlie Grace’s governance session, whether you’re developing an initial governance framework or modifying an existing structure, there are many ways to move forward.
Make strategic investments in technology for your family office.
Technology is a strategic investment – both in terms of efficiencies for staff, but also getting ahead where family members (especially the next generation) may want to have more tech support in accessing information. Not every solution does it all, but the right systems can offer scale, efficiency, and add value over time.
All data as of November 8, 2023.