Family offices, the bespoke investment firms managing the fortunes of the ultra-wealthy, are increasingly pivoting their portfolios toward private credit and infrastructure. This strategic shift is driven by a confluence of factors, including the declining allure of private equity, the search for stable yields, and the need for inflation protection. The migration toward these alternative assets is reshaping the investment landscape, offering both opportunities and risks.
The Decline of Private Equity’s Appeal
Private equity (PE) has long been a cornerstone of family office portfolios, providing access to high-growth companies before they go public. However, recent years have seen a significant slump in deal and exit values, particularly outside the Asia-Pacific region. Sky-high valuations, limited liquidity, and a backlog of “dry powder”—capital waiting for deals—have contributed to stagnating returns. These challenges have made private equity less attractive, prompting family offices to explore alternative investment avenues.
Macroeconomic uncertainty, persistent inflation, and volatile public markets have further amplified the search for assets that offer income, inflation protection, and diversification. Private credit and infrastructure have emerged as the most compelling solutions, offering a blend of stability and growth potential.
The Rise of Private Credit
Private credit has experienced a dramatic surge in popularity among family offices. Over one-third of family offices surveyed by BlackRock and KKR plan to increase their allocations to private credit in 2025 and beyond. This asset class, once a niche dominated by specialist hedge funds and institutional managers, has matured significantly. Family offices are now recognizing its potential to deliver attractive risk-adjusted returns.
Several factors contribute to the appeal of private credit:
– Filling the Bank Void: Regulation and risk-aversion have caused traditional banks to retreat from several lending markets, particularly to mid-sized companies and real assets. Private lenders have stepped in aggressively to fill this gap.
– Predictable Yield: Private credit investments, often structured as loans with floating rates, allow investors to capture a premium over public bond markets. The negotiated terms and tailored covenants provide additional benefits.
– Downside Protection: In a world wary of recession and credit shocks, the senior-secured nature and robust controls embedded in private lending agreements offer a greater measure of security.
The numbers support this trend: worldwide, private debt fundraising hit new highs, with family offices now routinely allocating significant portions of their portfolios—ranging up to 42% in some cases—to these investments.
Infrastructure: A Safe Haven with Growth Potential
Infrastructure investments combine stability and long-term growth, making them an attractive option for family offices. Over 30% of family offices polled expect to increase their allocations to infrastructure in the upcoming investment cycles. The enthusiasm for infrastructure is driven by several key factors:
– Inflation Hedge: Infrastructure projects, such as renewable energy, utilities, and transport, often have regulated or inflation-linked cash flows. This makes them a major selling point during periods of rising prices.
– Societal Megatrends: The global race to net-zero emissions, the voracious energy and data demands of artificial intelligence, and population-driven urbanization all create persistent needs for new infrastructure. Family offices view these assets as not just defensive but aligned with secular growth.
– Illiquidity Premium: Like private credit, infrastructure assets typically reward long-term investors with higher yields for their patience and commitment, making them a staple for capital that isn’t in need of fast turnover.
Asia, North America, and Europe have all seen rising deal activity in renewables, digital infrastructure (data centers, fiber), and transportation, reflecting family offices’ global perspective.
The Broader Context: Flight to Alternatives
The migration toward private credit and infrastructure is part of a wider trend: an ongoing exodus from public equities and cash. Family offices have lifted their average allocation to alternative assets to over 40%, and for some, over half. Public markets have lost their luster due to volatility, while rising interest rates and geopolitical uncertainty have made diversification more urgent.
Private markets overall promise lower correlation to traditional asset classes, higher yield, and—at least theoretically—reduced volatility. However, they also come with their own hazards, including illiquidity and complex due diligence.
Why Family Offices Move Faster
Unlike large institutional investors constrained by bureaucracy, family offices enjoy sharper agility and a longer time horizon. They answer only to their founding families, allowing them to make swift decisions. This independence is also reflected in their willingness to back emerging managers and niche strategies within private credit and infrastructure, hoping for outsized returns and early-mover advantages.
AI, Data, and the Infrastructure Imperative
A specific trend now driving infrastructure allocations is the exponential rise of artificial intelligence and cloud computing. Data centers, energy grids, subsea cables, and even water systems are all seeing massive new investment as the world’s digital appetite strains existing foundations.
CEOs at top investment firms remark that “AI has big infrastructure needs,” a sentiment echoed by many surveyed family offices. Indeed, some now view infrastructure as a growth play—critical to the digital transformation and new economic paradigms—rather than just a defensive allocation.
Risks and Trade-Offs in the New Alternative Landscape
No trend is without its risks. As family offices pour more capital into private credit and infrastructure, concerns are building about:
– Overcrowding: The flood of capital may compress returns, narrowing the yield premium that made these assets so enticing.
– Illiquidity: In volatile times, the lack of a liquid exit in private markets can be the Achilles’ heel of alternative allocations.
– Complexity and Governance: Specialized due diligence is required—as these are not assets you track off a Bloomberg chart, but projects and credits requiring hands-on oversight, legal fluency, and familiarity with regulatory pitfalls.
– Valuation Discrepancies: Methods for marking these loans or infrastructure equity stakes to market are far less precise than for public securities, risking hidden losses.
Family offices must therefore brace for an environment where picking the right managers, understanding underlying assets, and negotiating strong covenants are paramount.
Looking Ahead: The Rise—and Testing—of Family Office Strategies
This aggressive tilt toward private credit and infrastructure shows no sign of slowing for now. Ultra-wealthy investors, with their appetite for yield and long cycles of capital, are prepared to weather illiquidity and complexity. However, as more money chases these themes, those who bring real expertise, patience, and a willingness to hunt beyond the obvious will likely outperform.
Meanwhile, the competitive landscape is intensifying. Asset managers, insurers, pension funds, and even sovereign wealth funds are jostling alongside family offices for the best private credit opportunities and infrastructure pipelines.
Conclusion: Navigating the Alternative Frontier
The strategic pivot by family offices is more than a passing phase—it’s a bold reset. Private credit and infrastructure have earned their place at the top of alternative allocations, offering stable yield, inflation protection, and a chance to ride structural megatrends. Yet this evolution isn’t without growing pains: excess competition, unfamiliar risks, and new operational demands will test even the most sophisticated investors.
The family office playbook for 2025 and beyond is being written in real time, and as the world’s economic and technological engines shift gears, their bets on “alternatives” are fast becoming the new mainstream. For families seeking to safeguard and compound generational wealth, the challenge and the opportunity are the same: look past the headlines and surface trends, get hands-on with strategy and execution, and never underestimate the speed with which the next tide may roll in.
