In recent years, the explosion of family offices across the Asia-Pacific region, including Australia, has captured significant attention.
According to the 2023 Global Family Office Compensation Benchmark Report by KPMG, the region now accommodates 9 percent of the world’s family offices, with Singapore alone hosting the majority, at 59 percent.
A primary driver of this development is the escalating wealth levels in the region, coupled with the increasing complexity of financial markets. Families are increasingly inclined to exert greater control over their investment strategies, driven by the need to professionalise their asset management practices amidst rising global uncertainty and geopolitical risks.
Traditionally, family offices favoured conservative investment approaches, often gravitating towards transparent and familiar assets such as equities and bonds.
In response to the volatile macroeconomic landscape, family offices worldwide are re-evaluating their investment approaches, particularly considering higher capital costs and evolving returns from non-traditional asset classes. Many are diversifying beyond public markets, turning to assets like infrastructure, real estate, and corporate debt.
Easier access to information has prompted a shift towards portfolio diversification across various asset classes to mitigate risks and a growing emphasis on defensive strategies through real estate credit. Against this background, real estate private credit has emerged as a popular option for investors seeking stability in otherwise volatile markets. This rapidly growing alternative asset class offers an avenue for diversification by providing steady returns without the correlation to stock market fluctuations, thus presenting opportunities to bolster portfolio resilience.
"Real estate private credit has emerged as a popular option for investors seeking stability in otherwise volatile markets."
Within the realm of real estate investments, there is a discernible trend towards defensive strategies, with newer generations within family offices directing their attention towards real estate private credit amidst rising inflation and interest rates. Lending to participants in the real estate market gives investors access to a more predictable income stream, with attractive returns and lower volatility.
In Australia, this comes at a time when the demand for housing is significant – as the population grows, housing supply remains insufficient, and prices continue to climb.
Despite the challenges posed by market dynamics, quality housing and commercial assets in prime locations across key cities like Sydney remain attractive for family offices. Lending via real estate private credit provides a compelling opportunity for investors seeking attractive, determinable income uncorrelated to market volatility. Add to that robust governance, a sophisticated investment sector, and solid market dynamics, and Australian real estate private credit becomes an attractive option for foreign and local investors alike, providing a positive platform for sustainable growth in the coming years.
