Private Markets
Family Offices Are Betting on Alternatives and Holding Too Much Cash
Christopher Gerace
5 Minutes
J.P. Morgan's survey of 333 family offices shows alternatives now anchor portfolios, yet many still hold inefficient cash piles while targeting 7-10% returns.
Equity markets moved lower overnight as sentiment shifted toward concerns around the potential disruptive effects of artificial intelligence.
While AI has largely been viewed as a powerful productivity and earnings catalyst, some investors are beginning to question whether rapid technological adoption could materially disrupt traditional business models across financial services, logistics, real estate and software.
More defensive sectors attracted capital, with consumer staples and utilities outperforming as investors rotated toward perceived stability.
While concerns around structural disruption are gaining attention, markets continue to weigh short-term volatility against the longer-term productivity and growth potential that AI investment may ultimately deliver.
Commentary from Industry Leaders
This week I reviewed the 2026 JP Morgan Family Office report. The report reflects the perspective of 333 family offices across 30 countries around the world.
Key Points:
Alternatives are no longer 'satellite' allocations: Family offices now allocate approx. 60%+ to alternatives when inflation or geopolitical risk is front of mind, with private equity, real estate, private credit and hedge funds forming the backbone of portfolios. Traditional 60/40 portfolios are no longer sufficient to meet real return objectives in a structurally higher-inflation, geopolitically fragmented world.
AI conviction is high, but implementation is poor: While 65% of family offices prioritise AI, most have little to no exposure to the areas where value is actually created - growth equity, venture capital and enabling infrastructure. This disconnect creates opportunity.
Cash levels are elevated and likely inefficient: Over 30% of family offices hold 10%+ in cash, even while targeting 7-10% returns. In a global declining rate environment, this creates a growing risk of return drag and purchasing-power erosion. Domestically it provides a safe haven with rates forecasted to see at least two more rate rises this year.
Portfolio construction is increasingly risk-driven, not benchmark-driven: Geopolitics, inflation and policy risk dominate decision making, yet most family offices still have minimal exposure to traditional hedges like gold, infrastructure and secondaries. This tells us portfolios are evolving but not yet optimised.
Governance and succession risk directly affect investment outcomes: A significant majority of family offices lack clear succession planning and may cite internal misalignment as a key risk. Importantly, those with strong governance structures tend to have more disciplined portfolios and longer decision horizons.
Economic News
The Albanese government is facing growing calls for Australia's first comprehensive federal spending review in more than a decade, as economists warn record expenditure levels are adding to inflation pressures.
Key Points:
The OECD recently highlighted that Australia lacks regular spending reviews and long-term expenditure limits, making it an outlier among advanced economies.
Federal spending is projected to reach 26.9% of GDP in 2025-26, the highest level outside the pandemic since the 1980s.
With inflation ticking up to 3.8% and the RBA lifting interest rates, Governor Michele Bullock confirmed that government spending has contributed to inflationary pressures.
As the May budget approaches, fiscal discipline and spending restraint are likely to remain central themes for markets in 2026.
Market Snapshot
Australia: ASX drops on renewed fears of AI overinvestment.
United States: Dow -1.3%, S&P 500 -1.6%, Nasdaq -2%.
Bonds: US 10-year yield at 4.10% and Australian 10-year yield at 4.80%.
Gold: Declined overnight.
Key Events Coming Up
Friday 13th, February: US Core CPI (MoM) (Jan)
Wednesday 18th, February: AU Unemployment Rate (Jan)
Investment Update
Earlier this week we were presented with a commercial property opportunity in Melbourne's CBD. The opportunity below is open to wholesale clients only.
Asset Overview:
High-quality, fully refurbished approx. 30,000sqm commercial office building.
Located in the North East precinct of Melbourne CBD.
Anchored by Origin Energy, a leading ASX50 energy company.
Approximately 80% occupied.
18-month rental guarantee on vacant space with active leasing interest.
Blue-chip tenant occupying approx. 50% of the building, remainder multi-tenanted.
The building has already undergone a substantial approx. $25M capex program by the current owner, including significant ESG upgrades and a 5-star NABERS energy, water and indoor environment ratings.
Investment Thesis:
The fund managers believe Melbourne CBD commercial property is approaching an inflection point. New supply is expected to slow materially, while Melbourne continues to benefit from strong population growth. The North East precinct offers materially cheaper economic rents than the Eastern Core, positioning the asset well to capture a recovery in leasing conditions. Importantly, the fund managers intend to cornerstone approximately 40% of the transaction via co-investment through their managed funds, creating a strong alignment of interest.
Indicative Highlights:
Estimated Net IRR of ~15% p.a.
Average cash distribution of ~8% p.a., paid quarterly.
Acquisition at ~45% discount to replacement cost.
~37% discount to reported peak offer.
Attractive 8.5% fully leased initial yield.
Well-supported exit assumptions below current replacement cost and prior peak pricing.
This structure provides the opportunity to acquire a high-quality, core CBD asset at what may be a cyclical low, while targeting value-add style returns through a potential market recovery.
