FAMILY offices in Asia-Pacific (Apac) are turning bearish on returns from private equity and venture capital, according to the Apac Family Office Report 2023 by data company Preqin.

Drawing from Preqin data and insights from over 50 single and multi-family offices in Apac, 46 per cent of family offices expect returns from private equity to be worse for the next 12 months compared with the previous 12 months.

Venture capital fared worse, with 48 per cent of family offices expecting returns to be worse for the next 12 months compared with the previous 12 months. The factors of low interest rates and high money supply that powered valuations in venture capital are no longer present, impacting returns expectations.

The majority of family offices (46 per cent) are planning to allocate the same amount of capital to venture capital, with 31 per cent planning to allocate less capital and 23 per cent planning to allocate more capital. A more cautious approach pending clarity and confidence in the markets is influencing the capital allocations.

There is also a preference for early-stage over late-stage deals in the venture capital space. Late-stage deals are seen as competitive with lower growth prospects and exit options, while early-stage deals are less impacted by short-term volatility.

Private equity is seeing similar expectations in returns from family offices, as a further correction is expected as private equity is viewed as overvalued compared with public market valuations. However, family offices are seeing opportunities in private equity, with lower entry valuations and the possibility of benefiting from long-term growth prospects.

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Only 21 per cent of family offices plan to allocate less capital to private equity, while 39 per cent plan to allocate more capital and 39 per cent plan to allocate the same amount of capital. Family offices are likely to diversify portfolios, selecting funds with exposure to a wide range of startups and deals.

Family offices believe that private equity present the best opportunities over the next decade, with 37 per cent of respondents selecting it. Private debt came in second with 20 per cent of respondents in favour of it.

Inflation, rising interest rates and geopolitical risk are the three main factors that Apac family offices see as weighing on global economic activity. Environmental, social and governance (ESG) investment policies are not high on the family offices’ list in Apac, with 43 per cent having none, and no plans either to adopt an ESG policy. Only 37 per cent had an ESG investment policy, a number expected to grow as newer generations accept and adopt ESG.

Investment styles between generations are also expected to change, as family offices move to investing in areas unfamiliar to them as the younger generation takes over. A popular asset class for family offices is private debt, a relatively new one, with real estate falling out of favour, according to the survey.

“Younger generations will continue to leverage technology and investment experts to diversify and strengthen their portfolio against market risks, while remaining cognisant of their family legacy and how they can create impact for their own families, as well as wider society,” said Harsha Narayan, managing editor, Preqin.