SFO Strategies Taxonomy
Agriculture and Farming
These investments involve acquiring farmland, agricultural infrastructure, or stakes in agribusinesses. Investments in this sector can offer long-term stable returns, inflation protection, and exposure to real assets. Agriculture can also be seen as a sustainable and socially responsible investment.
Art
Investing in fine art can be a way for family offices to store wealth and diversify their portfolio. Art investments are alternative assets that can appreciate over time and often have low correlation with financial markets, but they also carry risks related to liquidity, valuation, and authenticity.
Balanced
Balanced strategies involve maintaining a mix of asset classes, typically equities, fixed income, and alternative investments. This approach helps manage risk while seeking moderate growth and income, as well as diversifying investments across different asset types.
Bank Loans
Bank Loans (also known as leveraged loans) are loans extended by banks to companies with below-investment-grade credit ratings. Family offices may invest in bank loans for higher yields than traditional bonds, but they involve greater risk due to credit quality. They are often used in private debt or direct lending portfolios.
Blend
A Blend strategy is an investment in a combination of value and growth stocks. This can offer exposure to both stable, established companies and high-growth potential companies, balancing the desire for growth with risk management.
Buyouts
Families purchase a controlling interest in an established company, often with the use of debt, either directly or through private equity firms. This strategy offers potential for high returns through active ownership, restructuring, and growth of the company.
Convertibles
Convertibles are bonds or preferred shares that can be converted into equity at a later date. Convertibles can offer the potential upside of equity ownership while enjoying the fixed income and relative safety of bonds.
Core
Core strategies focus on investing in high-quality, stable assets, such as blue-chip stocks, investment-grade bonds, or prime real estate. This strategy aims for steady, predictable returns with lower risk, making them suitable for wealth preservation.
Core Plus
Building on core investments, Core Plus strategies add slightly higher-risk assets, such as high-yield bonds or real estate in emerging markets, to boost returns and gain additional yield.
Corporate Bonds
These are debt securities issued by companies to raise capital. Corporate bonds can provide a stable, predictable income stream with generally lower risk than equities. However, credit risk depends on the issuing company’s financial health, with higher yields often being reflective of the higher risk.
Commodity Trading Advisor (CTA)
Commodity Trading Advisor strategies involve using futures and options contracts to speculate or hedge on commodities, currencies, or financial indices. CTAs may be used to diversify portfolios and seek returns uncorrelated to traditional assets.
Development
Development investing typically refers to real estate or infrastructure development projects. Family offices may invest in these for high returns, but they involve higher risks due to construction, regulatory, and market factors.
Digital Assets
Digital Assets, such as cryptocurrencies or blockchain-based investments, are increasingly popular with those seeking exposure to innovative and disruptive technologies. These assets are highly volatile but can offer high growth potential.
Direct Lending
Direct lending is the practice of providing loans to companies or individuals without going through traditional financial institutions like banks. This strategy can earn the family office a consistent income from interest payments while retaining more control over the terms and conditions of the loan. This can be a more attractive alternative in times of low interest rates or tight bank credit.
Distressed
Distressed investing involves purchasing assets or companies in financial distress, often at a deep discount. This strategy can be used to realize value through turnaround efforts or by restructuring the company's debt.
Distressed Debt
Distressed Debt refers specifically to purchasing the debt of struggling companies. Investors would expect to gain through debt restructuring or liquidation processes that unlock value.
Diversified
A diversified strategy spreads investments across various asset classes and sectors to minimize risk. This strategy can be employed to protect capital, reduce volatility, and ensure steady returns.
Diversified Growth Fund (DGF)
Diversified Growth Funds are multi-asset funds aimed at delivering capital growth by investing in a broad range of asset classes, including equities, bonds, and alternatives. DGFs offer diversification and flexibility with a focus on growth.
Early Stage
Early Stage investing involves providing capital to startups and emerging businesses in their infancy. Investing in early-stage companies allows family offices to capture outsized returns if the company grows, although it carries high risk.
Emerging Market Debts (EMDs)
Emerging Market Debts are bonds issued by governments or companies in developing countries. EMDs offer higher yields than developed market bonds but come with greater risks such as political instability and currency volatility.
Energy
Investments in Energy include traditional sectors like oil and gas, as well as renewable energy sources like wind, solar, and hydro. Investments in the energy sector can offer family offices income, growth potential, and diversification. Renewables are also often appealing to those focused on sustainability.
Equity
This strategy focuses on the purchase of company shares, either publicly traded or privately held. Whilst investments in equities can offer long-term growth and significant returns through capital appreciation and dividends, this strategy carries market risk. Family offices often hold substantial equity stakes for both financial and strategic influence.
Event-Driven
Event-Driven strategies focus on exploiting opportunities created by specific events, such as mergers, acquisitions, or bankruptcies. Family offices may use this strategy to profit from short-term inefficiencies in markets caused by corporate actions.
Fixed Income/Credit
Fixed Income investments, such as bonds, provide regular income and help preserve capital. Fixed Income can play a key role in providing steady returns with lower risk, balancing more volatile equity investments.
Government Bonds
Government Bonds are debt securities issued by national governments. They are considered low-risk, providing a reliable source of income and capital preservation, especially for risk-averse family offices.
Green Bonds
Green Bonds are fixed-income instruments that finance environmentally friendly projects. Investments in Green Bonds may align a family offices’ portfolio with its sustainability and socially responsible investing goals.
Growth
A Growth strategy focuses on investing in companies or assets with high potential for capital appreciation Growth strategies are pursued to seek long-term value creation, often accepting higher volatility and risk.
Growth Capital
Growth Capital refers to investments in established companies that are raising capital to expand operations, enter new markets, or grow their business. Growth Capiral can be provided to achieve higher returns from relatively mature companies with proven business models.
High-Yield
High-Yield bonds, also known as junk bonds, offer higher returns to compensate for their increased risk. Family offices may invest in high-yield bonds to earn attractive interest income, though these bonds come with a greater chance of default.
Inflation-Linked Bonds
Inflation-Linked Bonds are government or corporate bonds that adjust their principal value with inflation, preserving purchasing power. Family offices invest in these bonds to hedge against inflation and ensure real returns.
Infrastructure Debt
Infrastructure Debt involves lending to or financing infrastructure projects such as roads, airports, or energy facilities. Infrastructure debt investments can offer stable, long-term income tied to real assets.
Investment Grade
Investment Grade bonds are issued by companies or governments with high credit ratings. These bonds provide lower yields but also lower risk, making them attractive to family offices seeking capital preservation and steady income.
Late Stage
Late Stage investing focuses on mature companies that are approaching an initial public offering or other exit opportunities. Investing in late-stage ventures can capture growth with reduced risk compared to early-stage startups.
Low-Volatility
This strategy focuses on investing in assets or securities that exhibit lower price fluctuations relative to the broader market. A low-volatility approach aims to protect wealth by reducing downside risk, which is crucial for capital preservation, especially for families with a focus on long-term wealth stability.
Macro
Macro strategies take positions based on the expected movements of global macroeconomic trends such as interest rates, inflation, or geopolitical developments. Macro strategies can be deployed to hedge against global risks or capitalize on large-scale market shifts.
Metals and Mining
Investments in Metals and Mining can include the acquisition of precious metals like gold or silver, or stakes in mining companies. Investments in this sector can offer portfolio diversification, inflation protection, or as a hedge against economic downturns.
Mezzanine Debt
Mezzanine Debt is a hybrid of debt and equity financing, typically used by companies to fund expansion. Investments in mezzanine debt can earn investors higher returns than traditional debt, with the potential to convert the debt into equity if the company performs well.
Multi-Asset Credit
Multi-Asset Credit involves diversifying fixed-income investments across various debt instruments, such as corporate bonds, loans, and structured credit. This approach may manage potential risk while seeking enhanced returns.
Multi-Strategy
Multi-Strategy refers to using a variety of investment approaches, such as long/short equity, fixed income, and event-driven strategies, within a single portfolio. This strategy is often employed to diversify and achieve more consistent returns across different market environments.
Municipal Bonds
Municipal Bonds are issued by local governments and often provide tax-free interest income. Investments in municipal bonds may achieve steady, low-risk, and tax-efficient income.
Opportunistic
Opportunistic investing involves taking advantage of specific short-term opportunities in the market, often with higher risk. This approach can capture outsized returns in special situations or dislocations in the market.
Relative Value
Relative Value strategies involve capitalizing on price discrepancies between related assets, such as stocks and bonds, or different companies in the same sector. This strategy may be used to achieve returns with lower correlation to overall market movements.
Secondaries
Secondaries are investments in existing private equity or venture capital funds that are sold by current investors before the fund’s natural exit point. Participation in secondary markets may allow investors to gain exposure to private assets at a discount or reduce the risk by investing in funds that have already gone through some of the investment cycle, offering more transparency about performance.
Short Term Investment Fund (SIFTs)
The pooling of capital for investment in short-term, liquid, and low-risk securities, such as Treasury bills or commercial paper. Short Term Investment Funds can be used as a cash management tool to preserve capital and maintain liquidity, while still earning modest returns.
Special Situations
Special Situations refers to investments in companies undergoing significant changes, such as restructurings, mergers, or spinoffs. Investors may invest in special situations to profit from the market’s mispricing of these events.
Specialty Finance
Specialty Finance involves providing financing in niche areas, such as small-business loans, consumer credit, or factoring. Engaging in specialty finance can offer investors access to high-yield, alternative lending markets.
Structured Credit
Structured Credit refers to investing in complex financial products like mortgage-backed securities or collateralized loan obligations. Investing in structured credit can offer higher yields but it is important to carefully assess the associated risks.
Tactical Asset Allocation
This is an active management strategy where the family office adjusts the weighting of asset based on short-term market opportunities or risks. The goal is to enhance returns by taking advantage of market conditions while maintaining a strategic, long-term asset allocation.
Timberland
Timberland investments involve acquiring forested land for the purpose of harvesting timber. This strategy provides long-term, sustainable returns and serves as a hedge against inflation.
Turnaround
Turnaround strategies focus on investing in companies in financial distress with the intent of restructuring and revitalizing them. These investments can be deployed to unlock significant value from underperforming assets.
Value
Value investing involves purchasing undervalued assets or stocks that are trading below their intrinsic value to seek long-term appreciation from mispriced securities.
Value Add
Value Add strategies involve investing in real estate or businesses where there is an opportunity to enhance value through improvements, operational efficiencies, or strategic initiatives. This strategy can be executed to generate higher returns from underperforming assets.
Venture Capital
Families invest in early-stage, high-growth startups to diversify their portfolios and gain exposure to the innovation economy. These investments carry high risk but can offer outsized returns if the startup becomes highly successful.
Venture Debt
Venture Debt refers to lending to startups or growth-stage companies, often as an alternative to equity financing. Investing in venture debt to earn interest while potentially receiving equity warrants for upside if the company succeeds.