Innovative strategies diversifying family office portfolios 

Multi-asset credit (MAC) strategies are benchmark-agnostic ‘best ideas’ strategies that can provide efficient and dynamic exposure to a diversified portfolio of sub-IG credit classes.

Family offices, with their flexible asset allocation, aim to benefit from an unconstrained fixed income strategy that intends to achieve income and returns commensurate with a high-yield bond strategy but with lower levels of volatility over an investment cycle by investing in a diversified portfolio of predominantly sub-investment-grade issues.

MAC strategies encompass a broad range of credit classes, including high-yield bonds, bank loans, structured credit (such as collateralised loan obligations), securitised credit (like asset- and mortgage-backed securities), emerging market debt, convertible bonds, subordinated bank capital, and opportunistic or event-driven credit, as well as stressed and distressed debt. They may also include investment-grade corporates and developed-market government bonds to enhance liquidity and reduce volatility.

Returns are generated through dynamic top-down sector rotation across asset classes and rigorous bottom-up security selection. While the degree of top-down allocation varies by strategy, the commitment to fundamental security selection remains consistent. Outsourcing asset allocation decisions to an experienced investment management team, who are closer to the market, enhances governance and efficiency, allowing for improved timing of market entry and exit. Although MAC strategies can experience significant drawdowns during credit market downturns and may lag high-yield bond strategies in strong market conditions, they are designed to provide better downside protection and smoother return profiles through dynamic sector rotation.

Positioned at the growth end of the fixed income risk/return spectrum, MAC strategies may deliver higher returns and Sharpe ratios, serving as a counterbalance to traditional investment-grade fixed income and more defensive strategies like absolute return fixed income.

Overall, the spectrum of investment strategies ranges from a conservative approach that emphasises top-down sector rotation and investment-grade bonds for stability and liquidity, to a balanced bottom-up strategy with higher risk and a focus on high-yield assets, culminating in a more aggressive, event-driven strategy that prioritises deep value and security selection, but carries greater risks and longer liquidity terms.

Next-generation infrastructure assets offer potentially competitive returns and diversification aligned with global megatrends, while providing stable, inflation-protected cash flows.

Infrastructure as an asset class has undergone a significant evolution, transcending its traditional role of delivering stable yields and inflation protection to become a versatile tool for portfolio construction. This shift is fuelled by expansion beyond classic infrastructure into areas like electric vehicle (EV) charging (opportunistic), non-PPP social infrastructure and renewables platforms (value-add), and hyperscale data centres (core-plus). Renewable energy, once a nascent sector, has become a core component of infrastructure portfolios, driven by global megatrends like decarbonisation and digitalisation.

While next-generation infrastructure assets may not always exhibit the hallmark characteristics of traditional infrastructure, they typically continue to benefit from long-term inflation-protected cashflows and demonstrate a lower correlation to public markets. Investing in these areas demands careful management of heightened risks. Family offices must navigate challenges like fluctuating electricity costs, as seen in recent data centre project delays, and supply-chain disruptions impacting solar panel procurement.

Embracing these new infrastructure opportunities is crucial for long-term success. While risks exist, careful planning allows family offices to access competitive returns and diversify their portfolios. This evolving landscape offers a powerful toolkit for family offices seeking to align investments with global megatrends. Staying informed and partnering with experienced managers will be key to capitalising on this dynamic asset class.

Hedge funds may offer a unique opportunity to diversify investment returns and mitigate market risks, making them a valuable addition to long-term portfolios in today’s dynamic macroeconomic environment.

Hedge funds provide a variety of strategies that enhance risk-adjusted returns and offer unique diversification benefits. This comes from their trading flexibility, using diverse approaches to mitigate risk. This makes them less reliant on traditional betas or directional markets for returns and can result in a high-quality return profile that can diversify equity and bond portfolios. Their varied trading styles also embed cash-plus features in their returns (from short rebates or use of derivatives) and can offer investors capital efficiency.

To create a successful multi-sleeve hedge fund programme, targeting annual returns of cash plus 3-4% over market cycles, it’s essential to diversify across several dimensions, including managers, strategies, risk profiles and geographic regions. A well-structured hedge fund portfolio typically consists of 12-15 managers, striking a balance between concentration and diversification. We recommend beginning by identifying top-tier, world-class managers who can deliver investment strategies with a sustainable competitive edge likely to drive future success. Access to such managers can often be highly limited. Next, build a portfolio with these managers to harvest a range of return drivers driven by different opportunities across the business cycle. This strategy is the most effective way to achieve your family’s investment objectives.