What a difference a year makes. After a prolonged period of historically low interest rates and rising asset prices, 2022 marked the year of the ‘great reset’. The rise in inflation alarmed central banks, which quickly raised interest rates, sending stock and bond markets tumbling in unison. As if this were not enough, geopolitical tensions have grown to become a global investment issue for the first time in a generation.

It is evident from the results of our 2023 Family Barometer – in which we ask the opinions of those closest to high-net-worth individuals – that wealthy families understand this shift. With their advisors, they also wanted to discuss and better understand real estate and private direct investments – both of which are ‘real assets’, known for providing hedges against erosion of purchasing power in a world where inflation has recently re-emerged. Along with publicly traded stocks and bonds, the values of these assets fell in 2022, but this dark cloud also had a silver lining in the form of their valuations returning to more attractive levels.

“What happened in 2022’s great reset was a normalisation of interest rates after a decade of financial repression when an asset price inflation was created,” explains Reto Hintermann, Julius Baer’s Head of Chief Investment Office and UHNW solutions. “Everything is trading again at levels that are more or less in line with long-term averages, although valuations aren’t super-cheap. From that perspective, there is now a bigger opportunity set for investors.” For more of Reto’s insights, explore our Family Barometer in full.

Geopolitics: concentration rather than diversification

Geopolitical tension has been ratcheting higher for several years, making it a key consideration for investors looking to grow and protect their portfolios. It is, therefore, no surprise to find it the top topic of conversation for affluent families and their advisers. Diego Wuergler, Head of Investment Advisory, states: “We can highlight that geopolitical risks are much more important than they used to be and will influence many investment decisions going forward much more than in the past.”

But when it comes to the new geopolitical environment, concentration rather than diversification might actually be the better way to manage risk. Investors are increasingly choosing to concentrate their investments in their home countries and other states where they trust the political system and the rule of law. Indeed, to avoid being caught out by the latest flare-up in geopolitical tensions, investors are better off focusing on markets where the playing field is familiar and the rules of the game are most likely to be respected. Find more on this in our report.

Real estate’s hedge against inflation

Real estate has become one of the top five investment topics in the 2023 Family Barometer after being ranked lower in 2022’s survey. Many wealthy families regard it as an inflation hedge, because rents can be increased in line with the consumer price index. Against a backdrop of tightening monetary policy and expanding property yields, real estate investors generally focus on property segments like the residential or logistics market, which offer the potential for rental growth to offset current inflation.

There are many opportunities in the market still, only one of which is incorporating green building principles into one’s investment strategy. To discover how this can help investors to mitigate climate risk and bring healthy returns, explore our report.

Private direct investments’ enduring appeal

Large wealthy families have always sought to invest directly into fast-growing young businesses, and the 2023 Family Barometer shows this remains the case. “Often people have become wealthy because they had their own business, or a former generation did, and so they know the flavour of these private placement investments, as well as the risks related to them and what it takes for them to be successful," says Reto Hintermann.

Often the most popular private direct investments are co-investment opportunities linked to star brands or entrepreneurs, typically in the technology sector. But many investors acknowledge the higher risk in private direct investments, which is why they may opt for diversified programs rather than individual transactions.

As with all other asset classes, private equity valuations fell in 2022 and remain lower than before. “I would not be surprised if 2023 turns out to be a very successful vintage year, as the capital raised now will be deployed over the next two to four years,” Reto Hintermann concludes.

So what does this mean for investors?

It takes a strong nerve to remain invested when so much still remains uncertain, especially with the threat of recession looming in many countries. After 2022’s great reset, how should wealthy families adjust their investment portfolios? What asset classes should an investor turn to? And how should risk be considered?

Growing and protecting wealth amid today’s volatile and complex environment can feel like an overwhelming challenge. While many families choose to stay closely involved in the management of their investments, others choose to carefully select third-party experts, freeing them to focus on other matters. Or, as Diego Wuergler puts it: “It is not important how you address the management of your investments, as long as you do it consciously and own the process, before it owns you.”

For further insights on this and more, explore our Family Barometer report.