Family offices are bracing for higher inflation this year, with many buying real estate and alternatives as hedges, according to a new survey.

When asked about the largest risks to their current portfolio and positioning this year, 64% of U.S. family offices cited interest rates and 61% cited inflation, according to the J.P. Morgan Private Bank Global Family Office Report.

Among family offices around the world, geopolitics was cited as the top risk.

The report surveyed 333 single-family offices — the private investment firms of ultra-wealthy families — with an average net worth of $1.6 billion.

“Most clients are worried about two things right now,” said David Frame, global CEO of J.P. Morgan Private Bank. “They’re worried about inflation, and they’re worried about geopolitics.”

To protect their portfolio, many family offices are turning to real estate and alternative investments, especially private equity and hedge funds, according to the survey. Respondents who cited inflation as a top risk said they had 60% of their portfolios in alternatives and reported twice as much exposure to real estate and hedge funds, the survey found.

While preparing for potential inflation, family offices are also rushing into the artificial intelligence trade. AI remains the favorite investment theme for family offices, with 65% citing AI as part of their portfolio or a priority for future investments. Health care, infrastructure and cybersecurity were also popular.

Family offices are placing their bets in both public and private markets. U.S. family offices reported holding 40% of their investments in public equities — the largest asset class of their portfolios. They also said they hold 34% in private investments, which includes private equity, venture capital, private credit and real estate.

“There is a big focus on AI and technology in general,” Frame said. “People are fully of the belief that AI should be a central part of their portfolio. However, it’s balanced against the concern that AI is also a concentrated part of their portfolio.”

While retail investors are turning to gold as a possible hedge against inflation and a falling dollar, family offices are more hesitant. Nearly three-quarters (72%) of family offices surveyed said they had no gold exposure in their portfolios. Frame said that the recent surge in gold prices makes it increasingly risky for family offices that aren’t already holders.

“At this point, given the move in gold, they’re a little reluctant to add to their positions here,” he said.

Family offices continue to hold large amounts of cash and cash equivalents, the survey found. Some respondents said they are holding cash in case of a downturn, using liquidity to make opportunistic investments if asset prices fall. Others have been taking advantage of high short-term rates to get a strong yield on cash equivalents. While short-term rates have come down with recent cuts by the Federal Reserve, a spike in inflation could lead to more persistent or even higher rates.

“Those who are worried about inflation would rather sit in cash,” Frame said. “Because if inflation manifests itself at some point, rates could go higher, in which case being patient with your cash would pay off.”