Key Takeaways
- • Mercer recommends single-family offices consider thematic investing to capture long-term structural growth and compounding returns, particularly for multigenerational wealth preservation.
- • Mercer advises a systematic total-portfolio process for thematic investing: analyzing structural change, timing and cyclicality, profitability, liquidity and capacity, and likelihood of theme convergence, executed through an active multi-manager, multi-theme strategy.
- • Mercer's 2025 outlook is mixed for equities, with an overweight preference for Japanese equities and REITs, which it views as having solid fundamentals and undervaluation.
- • In credit, Mercer favors Asian high yield and frontier market debt while being underweight on spreads that it considers very tight.
- • Mercer is modestly underweight duration, expecting central banks to cut rates gradually and citing upward yield pressure risk from potential policies of President Trump.
Summary
Mercer's 2025 outlook for single-family offices argues that families should consider thematic investments to potentially capture long-term investment returns and to capitalize on structural trends and emerging risks. According to Mercer, thematic investing centers on long-term growth opportunities, allowing families to benefit from the compounding of sustained growth over many years. The firm says this approach can be especially advantageous for families seeking to preserve wealth across generations. Mercer notes that one of the initial challenges in building a thematic portfolio is theme identification, and it may recommend establishing a formal thematic framework to address this.
Mercer recommends a systematic approach across the total portfolio, with several steps: analyzing the long-term structural changes underpinning each theme, assessing its timeline and cyclicality, evaluating potential profitability, examining liquidity and capacity, and assessing the likelihood of multiple themes converging. The firm advises an active multi-manager, multi-theme strategy to implement thematic investments.
On markets, Mercer describes a mixed equity outlook for 2025, supported by a favorable economic backdrop and potential AI-driven earnings upside, but tempered by stretched valuations. Even so, the firm expects equities to deliver higher anticipated returns than cash, which it says may justify an overweight position. Mercer sees particular opportunity in Japanese equities, which may benefit from a structural pickup in nominal growth and accelerating capital expenditure, and in REITs, whose fundamentals it describes as solid and which it says remain largely unloved due to a misplaced narrative about index composition.
In credit, Mercer favors Asian high yield, citing attractive valuations and supportive macroeconomic conditions, and frontier market debt, which it says offers appealing yields within a well-diversified universe. The firm is underweight credit in aggregate because of very tight spreads, which partially offset its positions in those segments.
Mercer's economic view is that central banks, after aggressive rate hikes in 2022 and 2023, are now cutting rates to move from restrictive toward neutral policy. Growth in developed economies is expected to soften near term, though recession risk is considered low given strong corporate and household balance sheets. The firm anticipates that monetary loosening will boost growth in the second half of 2025, while uncertainties in China and US tariff increases could affect inflation. In government bonds, particularly in the US, Mercer says expectations for aggressive rate cuts have cooled, and it is modestly underweight duration to mitigate the risk of a significant yield rise, citing potential upward pressure from some of President Trump's policies.
Mercer recommends a systematic approach across the total portfolio, with several steps: analyzing the long-term structural changes underpinning each theme, assessing its timeline and cyclicality, evaluating potential profitability, examining liquidity and capacity, and assessing the likelihood of multiple themes converging. The firm advises an active multi-manager, multi-theme strategy to implement thematic investments.
On markets, Mercer describes a mixed equity outlook for 2025, supported by a favorable economic backdrop and potential AI-driven earnings upside, but tempered by stretched valuations. Even so, the firm expects equities to deliver higher anticipated returns than cash, which it says may justify an overweight position. Mercer sees particular opportunity in Japanese equities, which may benefit from a structural pickup in nominal growth and accelerating capital expenditure, and in REITs, whose fundamentals it describes as solid and which it says remain largely unloved due to a misplaced narrative about index composition.
In credit, Mercer favors Asian high yield, citing attractive valuations and supportive macroeconomic conditions, and frontier market debt, which it says offers appealing yields within a well-diversified universe. The firm is underweight credit in aggregate because of very tight spreads, which partially offset its positions in those segments.
Mercer's economic view is that central banks, after aggressive rate hikes in 2022 and 2023, are now cutting rates to move from restrictive toward neutral policy. Growth in developed economies is expected to soften near term, though recession risk is considered low given strong corporate and household balance sheets. The firm anticipates that monetary loosening will boost growth in the second half of 2025, while uncertainties in China and US tariff increases could affect inflation. In government bonds, particularly in the US, Mercer says expectations for aggressive rate cuts have cooled, and it is modestly underweight duration to mitigate the risk of a significant yield rise, citing potential upward pressure from some of President Trump's policies.
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