Family Offices Shift Into Defensive Mode: Why Alternative Assets Now Dominate Portfolio Strategy

Geopolitical uncertainty has become the defining concern for high-net-worth investors. According to the latest research from a major institutional investment firm, 84% of family offices cite geopolitical tensions as their primary decision-making factor, marking a significant shift from previous years. This growing concern has pushed sentiment negative for the first time since tracking began in 2020, with three-fifths of family offices expressing caution about the global economic outlook.

The Rise of Diversification: A Defensive Necessity

In response to mounting uncertainties, family offices are prioritizing structural portfolio resilience. More than two-thirds (68%) are actively increasing their diversification strategies, while nearly half (47%) are expanding their exposure to multiple return sources—including illiquid alternatives, international equities, liquid alternatives, and cash positions. The message is clear: institutional investors are building defensive positions rather than chasing growth.

This shift has fundamentally altered asset allocation patterns. Alternative investments now represent 42% of family office portfolios, up from 39% just a few years ago. The steady climb underscores a strategic recognition that traditional equity-bond combinations no longer provide adequate protection in fragmented markets.

Private Credit and Infrastructure: The New Cornerstones

Within the alternative assets space, two categories are capturing outsized attention: private credit and infrastructure. Nearly one-third of family offices intend to increase private credit allocations over the next 12-24 months, making it the highest-growth alternative asset class. Infrastructure follows closely, with 30% of respondents planning increased exposure.

The appeal is straightforward. Infrastructure assets deliver stable cash flows while serving as effective portfolio diversifiers—essential qualities during volatile periods. Three-quarters of surveyed family offices expressed confidence in infrastructure’s long-term prospects. Within this space, opportunistic (54%) and value-add (51%) strategies are particularly favored, driven by higher return potential and operational flexibility.

As for private credit strategy preferences, respondents overwhelmingly favor special situations and direct lending approaches. According to market observers, the sustained demand for these assets reflects both the illiquidity premium available and the differentiated return opportunities they provide in today’s environment—a point emphasized by investment leaders who note that access to quality deal flow and proven strategies remain critical competitive advantages as these once-niche strategies become essential portfolio components.

The Expertise Gap: Why External Partnerships Matter

Despite their sophistication, family offices increasingly recognize internal capability shortfalls. More than half identified gaps in reporting (57%), deal-sourcing (63%), and private market analytics (75%). This recognition is driving partnership expansion.

Around one-quarter of family offices have deployed or are considering outsourced chief investment officers (OCIOs), seeking external advisors who combine investment expertise with advanced technology platforms. The trend reflects a pragmatic acceptance: managing complex multi-strategy portfolios across public and private markets requires specialized infrastructure and talent that’s difficult to build in-house.

Technology Adoption Lags Despite Interest

An interesting contradiction emerged around artificial intelligence. A strong majority of family offices indicated willingness to use AI across various functions—from risk assessment to cash-flow modeling. Yet actual deployment remains limited. Currently, family offices are far more likely to invest in AI-focused companies (45%) or fund opportunities positioned to benefit from AI growth (51%) than deploy AI internally to enhance their investing processes (33%).

Technical infrastructure challenges and organizational barriers explain the adoption lag, despite clear strategic interest in leveraging the technology’s potential.

Survey Methodology

The analysis draws from a comprehensive research initiative conducted between March and May 2025. Researchers surveyed 175 single-family offices collectively managing over $320 billion in assets, conducting both structured surveys and in-depth interviews with chief investment officers and decision-makers across global markets.