Family offices are preparing for the possibility of higher inflation this year, and many are shifting their investment strategies toward real estate and alternative assets as a form of protection, according to a recent industry survey.

When asked to identify the biggest threats to their portfolios in the coming year, 64% of U.S.-based family offices pointed to interest rates, while 61% said inflation was a major concern, based on findings from the J.P. Morgan Private Bank Global Family Office Report.

Outside the United States, family offices ranked geopolitical instability as their greatest risk, reflecting growing global uncertainty.

The report was based on responses from 333 single-family offices, which are private investment entities managing the wealth of ultra-high-net-worth families. The average net worth of the families surveyed was approximately $1.6 billion.

David Frame, global chief executive officer of J.P. Morgan Private Bank, said that inflation and geopolitical tensions are currently the dominant worries among wealthy investors.

To safeguard their assets, many family offices have increased their exposure to real estate and alternative investments such as private equity and hedge funds. Among those who listed inflation as a top risk, alternatives now make up about 60% of their overall portfolios, and their holdings in real estate and hedge funds are roughly double those of other investors.

At the same time, family offices are actively embracing opportunities in artificial intelligence. AI remains the most popular investment theme, with 65% of respondents saying they are already investing in AI-related assets or plan to do so in the near future. Other favored sectors include health care, infrastructure, and cybersecurity.

These investors are diversifying across both public and private markets. U.S. family offices hold an average of 40% of their portfolios in publicly traded stocks, making equities their largest asset class. Meanwhile, about 34% of their assets are allocated to private investments, including venture capital, private credit, private equity, and real estate.

Frame noted that while enthusiasm for AI is strong, there is also awareness that heavy concentration in technology could introduce additional risk.

Unlike retail investors, who have increasingly turned to gold as a hedge against inflation and currency depreciation, most family offices remain cautious. About 72% of those surveyed reported having no exposure to gold at all. Frame explained that recent sharp increases in gold prices have made many investors reluctant to enter the market at current levels.

The survey also showed that family offices continue to hold significant amounts of cash and cash-like assets. Some investors are keeping liquidity on hand to take advantage of potential market downturns, while others are benefiting from relatively high short-term interest rates. Although the Federal Reserve has recently begun cutting rates, a renewed rise in inflation could push them higher again.

According to Frame, those most concerned about inflation tend to prefer holding cash, as rising rates could make patient cash positions more rewarding in the long run.