However, 12 per cent of respondents say they will keep allocations the same and just 3 per cent plan to decrease their level of investment in illiquid investments. Respondents say the primary motivation for investing in illiquid markets is the need to protect from macro uncertainty. More than half (52 per cent) of investors say this is the primary motivation for choosing private debt investments, which have strategies that offer a floating rate coupon, offering the potential for a natural hedge against inflation.

More than one-quarter (29 per cent) of investors say the most important feature of private debt assets is that they offer diversification benefits. One in ten respondents identified the expanding range of assets offered within private debt strategies as the key motivation for investing. The same number say the increased focus on ESG from the private debt markets is the most important reason behind more professional investors increasing their allocation to private debt.

Within illiquid assets, most investors (80 per cent) favour increasing allocations to residential real estate with 43 per cent expecting to make dramatic increases. Commercial real estate was also seen as a growing area of interest for 81 per cent of respondents, with 28 per cent saying they would increase allocations dramatically.

The firm writes that the report outlines the key factors driving family office investment strategies and outlook for 2023 and includes data on family offices from multiple sources so that the analysis reflects how family offices are actually approaching their direct investing globally.

Key findings include scepticism around digital asset investment is on the rise, but some family offices are still looking at this asset class

Improved deal flow is the top priority for family offices in 2023

Family offices are defensively positioned amid market volatility

Family offices are grappling with numerous direct investment challenges, including taking on too much operational risk (45 per cent of respondents), finding high-quality deal flow (43 per cent), having control of exit options (42 per cent) and finding enough time for proper due diligence (41 per cent)

Family offices use diversification with 85 per cent of family offices believing in broad diversification of factors, and 74 per cent using diversification across geographies

65 per cent of respondents agree that deep expertise in specialist areas is the most important criterion when selecting an external partner, service provider or supplier

“Dentons is the first law firm to produce a report of this kind,” says Edward Marshall, Dentons’ Global Head of Family Office. “This analysis, informed by leading family office principals and executives globally, had not existed before now. The report provides actionable, differentiated, and valuable insights to our clients and the broader family office community as investment strategies for 2023 are refined. Family offices now have data where they can evaluate their direct investment-related activities against peers of their own size and geography. This decision-making intelligence is what we aim to provide our family office clients worldwide.”