Family offices investing in alternatives should look at assets supported by collateral, contractual cash flows and structural protections rather than relying solely on corporate credit fundamentals, according to investment manager First Eagle.

“We find that the alternative credit allocations typical of family offices today are often less diversified, less flexible and more directionally exposed than they seem on the surface, undermining the benefits of exposure to the asset class,” a research report by the firm states.

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With approximately 24 per cent of single-family offices investing in private credit, exposure to alternative credit among family offices has been growing.

First Eagle claims family offices tend to have a core allocation to direct lending complemented by opportunistic or special-situations strategies and often some exposure to real estate credit.

This structure leaves them more vulnerable to stress scenarios, overlapping risk exposures and time constraints, the firm says, adding that it is possible to reshuffle allocations so that return drivers are less dependent on economic growth or spread compression.

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First Eagle recommends alternative credit exposures such as railcar leasing, US and European collateralised loan obligations, residential lending, asset based lending and lower middle market direct lending instead.

According to First Eagle, alternative credit beyond traditional spread-based investing offers investors access to a broader set of return drivers, income sources and portfolio diversification benefits.

First Eagle is headquartered in New York and holds approximately $213bn (£157.9bn) in assets under management.