Public and private equities are in focus, but respondents are less interested in cryptos for the next 12 months
What allocations are the largest family offices considering for the next 12 months?
Goldman Sachs asked the question of 166 family offices globally that most closely resemble institutions, with most having a net worth of at least $1 billion and more than 90% have in-house investment management capabilities.
Its new ‘Eyes on the Horizon’ report found that most are not sitting on cash but are risk-on and maintaining an aggressive approach to allocations including an increased focus on public and private equities and a modest hike in fixed income exposure.
“With the flexibility to invest across the risk spectrum, family offices have maintained a largely consistent approach to more aggressive allocations as they seek superior returns,” said Meena Flynn, Co-Head of Global Private Wealth Management and Co-Lead of One Goldman Sachs Family Office Initiative. “Planned risk-on allocations tell us they see strong opportunities to capture added alpha. This patient, strategic, long-term orientation is often an advantage in managing and preserving generational wealth.”
Where’s the money going?
The survey revealed the most favoured assets of respondents as they headed into 2023 (averaged):
- 28% public market equities
- 26% private equity
- 12% cash/cash equivalents (excluding U.S. Treasuries)
- 10% fixed income
- 9% private real estate and infrastructure
- 6% hedge funds
- 3% private credit
- 1% commodities
IT and healthcare are the sectors that the family offices are most overweight.
The sectors that are likely to see family offices increasing their allocations in 2023 include:
- 48% of respondents increasing their public market equities allocation
- 41% for private equity
- 39% for fixed income
- 30% for private credit
- 27% for private real estate and infrastructure
More than one third plan to decrease allocations to cash and cash alternatives (excluding US Treasuries) with just 10% planning to cut public market equities and 13% to decrease allocations to private equities.
Using specialized managers for their investments is preferred by most respondents except for private real estate, where ultra-high net worth (UHNW) families may feel they have a greater affinity for the asset class.
Alternatives of interest
Family offices have a higher interest in alternatives than other UHNW individuals, with a total portfolio allocation of 44% (compared to 20-25%).
“Family offices continue to carry meaningful allocations to alternatives, including private equity, private credit, infrastructure, real estate and hedge funds,” said Tony Pasquariello, Global Head of Hedge Fund Coverage and Co-Lead of One Goldman Sachs Family Office Initiative.
Real estate is of particular interest with around one-third planning to increase exposure to residential real estate over the next 12 months, and another 30% looking to maintain their exposure.
However, just 7% of family offices are seeking to increase exposure to the office sector and 4% to retail, with 12% and 10%, respectively, seeking to decrease exposure to these sectors.
Almost 4 in 10 respondents invest in collectibles – especially art, wine, and aircraft - with passion (71%) far outweighing the second-most-cited reason, diversification (39%).
Private credit
Almost one third of respondents plan to increase their allocation to private credit in the next 12 months.
“Following the Global Financial Crisis, banks pulled back from direct lending activity, and there is growing interest from family offices to fill this gap as private lenders,” said Ms. Naison-Tarajano. “Private credit is even more attractive in today’s environment given rising interest rates along with the quiet traditional financing markets across high yield and syndicated loan markets.”
On the other hand, crypto is seeing weakening interest among family offices. While 26% of respondents hold these assets, just 12% expressed potential future interest, down from 45% a year ago.
Sustainable investing
Among the family offices polled, 39% are moderately to extremely focused on sustainable strategies, and 48% invest directly in companies with social and environmental impacts.
Clean energy is the most favoured theme, with 60% of family offices expecting to deploy capital there in the next year, while sustainable food and agriculture, and accessible health care, are also popular themes.
Passing on wealth
The survey found that 48% of participant family offices support the original wealth creator and 61% said that investment decisions are not influenced by the next generation.
“The expected wealth transfer and changing dynamics in wealth creation are leading to a fundamental shift in the preferences of investors,” said Flynn. “Involving the next generation in financial matters early and often will equip them with the knowledge, resources and tools to be responsible stewards of family wealth for the long term.”
The structure of family offices is generally slim with 88% reporting investing teams of 10 employees or fewer.
Reflecting the institutional nature of the survey participants, 90% of respondents have in-house investment management capabilities and 49% reported managing the majority of their investment needs in-house, while 44% employ a hybrid approach of in-house and outsourcing.
