A year ago, in the wake of the worst days of the pandemic and with the economy on the rebound, you could be forgiven for assuming that 2022 would be calm, stable and profitable. And January started off well, with manufacturing expanding and trade levels once again reaching all-time highs.
But then Russia invaded Ukraine, rattling the economy and spiking prices for gold, crude oil and natural gas. That, in turn, set off a roller-coaster ride of a year, marked by market volatility, the collapse of crypto, more supply chain bottlenecks, doggedly high inflation and soaring mortgage rates.
Family offices responded by pulling more money out of equities and getting into the private markets, largely avoiding crypto, focusing on recession-proof industries, adjusting their philanthropic approach and preferring impact investing over ESG.
Here are the 12 most important developments in the family-office world in 2022:
1. FROM PUBLIC TO PRIVATE
More family offices shifted their portfolios from the public markets into private assets — such as private equity, direct deals and private credit. The average share of private equity in a family-office portfolio rose from 22% in 2021 to 27% in 2022. The trend should continue into 2023, with 46% of respondents saying they plan to allocate more to private equity funds and 41% to direct investments, per the recent RBC/Campden Wealth survey of North American family offices. Much of this move is driven by concern over stock market turbulence and inflation. In October, Duquesne Family Office CEO Stanley Druckenmiller said factors that cause a bull market are reversing and predicted that “the Dow won’t be much higher in 10 years than it is today.” Then in September, Blue Pool Capital — the family office of Alibaba co-founder Joe Tsai — sold off almost all of its U.S. stocks, including Alphabet Inc., Microsoft Corp. and Twitter Inc.
2. CRYPTO COLLAPSE
Skeptics were proven right about many cryptocurrency investments in a series of collapses of high-flying companies, from BlockFi to FTX. Bitcoin plummeted around 75% from its November 2021 all-time high; and even some supposedly safe, dollar-pegged stablecoins went south. However, the market will fight on for the time being. Bitcoin stabilized around $16,000 and a market cap north of $300 billion in December, and advocates continue to push for a future in the market. Family-office investments vary. Kent Swig of Swig Equities told Crain Currency in December that he would continue to invest in his gold-derivative crypto effort, DigAU. And more than half of the family offices in major financial hubs such as Hong Kong and Singapore said they bought crypto in 2022, with 70% of them saying they are “moderately or highly interested in digital assets.”
3. BONDS ARE BACK
An entire generation has grown up in a low-yield environment. But thanks to the Fed’s raising rates, we’re now seeing bonds offering yields at levels more typical of the 20th century. That opportunity to achieve several percentage points in return at relatively low risk has raised the stakes for every other kind of investment to produce returns great enough to outweigh the potential loss of capital that they bring. “At the very highest end of the market, the family offices are very engaged in this — very engaged,” David Bailin, chief investment officer at Citi Global Wealth, recently told Bloomberg.
4. REALLOCATING TO 'RECESSION-PROOF' INDUSTRIES
Reallocating to “recession-proof” industries: With inflation spiking throughout the year and with prices increasing on everything from gas and milk to Rolex watches and luxury goods, family offices focused on industries that remain largely immune to those headwinds. Druckenmiller’s family office bought up consumer discretionary and health stocks in the fourth quarter, pulling back on IT, energy and materials companies. Another big target is real estate, as some investors try to buy the dip. Tiger 21 founder Michael Sonnenfeldt told the Financial Times that “residential real estate is still a core strategy.”
5. PATAGONIA DONATION HIGHLIGHTS CHANGES IN PHILANTHROPY
Patagonia founder Yvon Chouinard and his family donated their ownership of the $3 billion outdoor gear company to a combination of a trust and a nonprofit, meant to ensure that earnings are used to combat climate change. The move, revealed in a New York Times article in September, will place 2% of the company and all of its voting shares in a trust and 98% and the vast bulk of the earnings in a 501(c)4 nonprofit that is allowed to make political donations. The move followed news that Leonard Leo had donated $1.6 billion the year before to fund efforts on the other side of the aisle — to forestall action on climate change.
6. MUSK'S TWITTER DEAL
Musk’s Twitter deal: In what is almost certainly the largest family-office-led acquisition of 2022, Elon Musk, at the time considered the world’s wealthiest man, purchased Twitter for $44 billion. Musk put up $22.4 billion at purchase, with investors chipping in $7.1 billion and banks financing an additional $13 billion. Because Musk’s liquid wealth is heavily derived from loans against his shares in Tesla, he was essentially buying Twitter on margin. As of December, he’d already been pushed to sell several billion dollars in additional Tesla shares to stay current with those accounts. And this month, Jared Birchall, the managing director of Musk’s family office, Excession, reached out to potential new equity investors.
6. MUSK'S TWITTER DEAL
In what is almost certainly the largest family-office-led acquisition of 2022, Elon Musk, at the time considered the world’s wealthiest man, purchased Twitter for $44 billion. Musk put up $22.4 billion at purchase, with investors chipping in $7.1 billion and banks financing an additional $13 billion. Because Musk’s liquid wealth is heavily derived from loans against his shares in Tesla, he was essentially buying Twitter on margin. As of December, he’d already been pushed to sell several billion dollars in additional Tesla shares to stay current with those accounts. And this month, Jared Birchall, the managing director of Musk’s family office, Excession, reached out to potential new equity investors.
7. WAR'S IMPACT ON COMMODITIES
Russia’s invasion of Ukraine increased market volatility, sent gas prices soaring and disrupted agricultural exports from the region. It also increased interest in oil and gas development in the U.S. Overall, though, it forced family offices to review their options with greater urgency and reexamine their portfolios, especially when it comes to investments tied to autocratic regimes. For one family, the war forced them to reexamine their priorities. Former pro boxer Wladimir Klitschko, whose family office saw the 35% of its assets in Ukraine plummet in value, is on the front lines, fighting for his country in Ukraine’s reserve army.
8. SINGAPORE AND MIDDLE EAST ATTRACT INVESTORS, FAMILY OFFICES
The family-office business is booming in Singapore, with a substantial portion of that growth reportedly due to families moving assets out of China. And in Dubai, the family-office business is attracting new investment from Goldman Sachs.
9. FAMILY ART COLLECTIONS SELL AT AUCTION
The art collection of Microsoft co-founder Paul Allen sold for $1.5 billion at Christie’s. The sale “was an outlier in that there were five works that sold for $100 million each, which just doesn’t happen anymore,” Emily Thompson of Thompson Art Advisors told Crain Currency. Three other single-owner collections generated more than $100 million at auction: those of former Whitney Museum President David Solinger, the late Sir Joseph Hotung and real-estate mogul Harry Macklowe and his wife, Linda.
10. RISK AND REBALANCE
Investors overall fled from risky assets, sending the stock market down more than 25% from its cycle peak in December 2021, while Treasury yields rose amid rate increases from the Fed. Accompanied by similar trends in the private markets, family offices would find that “this year really tested your risk level,” said Sharon Olson of the Olson Wealth Group. Some family offices, reviewing their portfolios alongside an investment policy statement, may be “surprised that they took on more risk than they thought or have greater liquidity risk,” Olson said. More experienced families “were focused on how to handle [take advantage or mitigate] the dramatic change in interest rates on both sides of their balance sheet,” said Bill Woodson, the head of strategic wealth advisory and family services at Silicon Valley Bank. “They also worked to identify opportunities whether to rebalance across asset classes or entry points to increase exposures.”
11. IMPACT INVESTING > ESG
While skepticism about environmental, social and governance principles grows in some quarters — with some states taking on giant asset managers like BlackRock over such commitments — family offices continue to increase their positions in sustainable investing. One key difference is that family offices “are more interested in solving specific problems more than they are with complying with broad mandates,” Laird Pendleton, a co-founder of the CCC Alliance, a peer network of over 130 single-family offices, told ImpactAlpha. That focus was highlighted by billionaire Lukas Walton — who shifted the $1 billion endowment of his investing and philanthropy platform, Builders Vision, to mission-related investments.
12. TAKING THE LONG VIEW
Sometimes, it helps to be patient and have perspective, not getting caught up in impulse buys or sudden trends in investment. “UHNW families and their family offices, as well as the multifamily offices that serve this segment, take the long view, with strategic thinking that seeks to navigate years and generations versus quarter to quarter, as is seen in other wealth tiers,” said Thomas Ruggie, the founder and CEO of the Destiny Family Office.