- In this article, we explore the investment alternatives that some professionals use to protect a family office’s wealth in the long term: securitized bonds, ETPs, and private equity.
- The information is aimed at asset managers looking to build diversified strategies beyond public equities.
- At FlexFunds, we securitize assets to issue exchange-traded products (ETPs) that can enhance the diversification and liquidity of investment strategies. For more information, feel free to contact our team of experts.
The family office market is expanding rapidly. In fact, according to Mordor Intelligence, it is expected to grow from $20 billion in 2025 to $28 billion by 2030, representing a 6.5% compound annual growth rate.
Additionally, as artificial intelligence (AI) has driven financial markets, the number of millionaires in the United States grew by 500,000 in 2024 alone, improving the outlook for the family office industry.
For this reason, specialists managing these assets must be aware of investment alternatives that ensure proper diversification and the long-term preservation of these significant fortunes.
The importance of diversifying wealth
Family wealth managers must pay close attention to portfolio diversification, as it is one of the most effective ways to reduce overall volatility and minimize the risk of major losses.
“The idea is that if one investment goes down in value, the other investments may help to mitigate the loss by remaining unaffected or possibly increase due to the market conditions. In this way, diversification may help you keep your portfolio in balance and still have the possibility of producing a positive return,” explains Morgan Stanley.
For example, in 2022âone of the worst years for stock marketsâwhile the S&P 500 fell 20%, a diversified portfolio with investment alternatives lost around 14%.
How to diversify a family officeâs wealth?
To effectively diversify a family officeâs wealth, asset managers should explore various investment alternatives, with three key options standing out:
- Private equity funds
- Securitized bonds
- Exchange-listed products
Private Equity Funds
Private equity funds are investment vehicles that pool capital from multiple investorsâtypically accredited, high-net-worth individualsâwith the goal of investing in privately held companies that often have strong growth potential.
“They come with a fixed investment horizon, typically ranging from four to seven years, at which point the PE firm hopes to profitably exit the investment. Exit strategies include IPOs and sale of the business to another private equity firm or strategic buyer,” notes the Corporate Finance Institute.
Securitized bonds
An investment alternative for family offices is securitized bonds, primarily due to their low volatility.
These financial instruments are debt securities backed by an underlying asset, such as student loans, credit card receivables, or mortgages.
Their main appeal lies in offering a fixed interest rate set at the time of issuance or purchase in the secondary market, allowing for more predictable cash flowâprovided there is no default or restructuring.
Exchange-listed products (ETPs)
Lastly, family offices may consider exchange-traded products (ETPs) as an investment alternative to optimize diversification and mitigate risk.
These bankable assets have their own ISIN/CUSIP codes and are linked to a broad range of underlying assets, including stocks, bonds, mutual funds, and hedge funds.
This allows asset managers to invest in various solutionsâboth locally and internationallyâwhile maintaining liquidity, flexibility, and customization.
FlexFunds, an experienced ally
These ETPs, structured through a rigorous asset securitization program, can be developed by FlexFunds.
At FlexFunds, we are backed by internationally renowned service providers such as Intertrust, Bank of New York, Interactive Brokers, Bloomberg, and Morningstar, among others.
Additionally, we provide a comprehensive service that includes:
- Stock exchange listing
- Fund accounting
- Back-office services
- Net Asset Value (NAV) calculation
- Corporate administration services
To learn more about FlexFundsâ ETPs and asset securitization program, feel free to contact our team of specialists. Weâll be happy to assist you!
Sources:
https://www.mordorintelligence.com/industry-reports/global-family-offices-industry
https://www.cnbc.com/2024/06/07/us-millionaire-population.html
https://www.morganstanley.com/atwork/employees/learning-center/articles/Portfolio-Diversification-101
https://www.morningstar.com/portfolios/why-portfolio-diversification-helped-investors-2022
https://corporatefinanceinstitute.com/resources/wealth-management/private-equity-funds
