Family offices are increasing “risk-on” allocations in next 12 months, says Goldman Sachs

Institutional family offices are increasing “risk-on” allocations in next 12 months across asset classes as interest in crypto wanes, according to Goldman Sachs.

Brands and Business Magazine

In its second-ever report on 2023 Family Office Investment entitled ‘Eyes on the Horizon,’ released last week, the Goldman Sachs Group said that many institutional family office investors are not sitting on cash in 2023. 

“Looking ahead to the next 12 months, they instead are risk-on, increasing allocations to public and private equities in particular, while modestly adding fixed income exposure to capture higher rate opportunities,” the report said.

The report surveyed 166 institutional family offices, with net worth of at least $500 million (93 per cent) and 72 per cent having at least $1 billion, between January 17 and February 23 this year.

Meena Flynn, Co-Head of Global Private Wealth Management and Co-Lead of One Goldman Sachs Family Office Initiative, said that 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.

“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,” she said.

Asset allocations

Family offices continue to maintain strong allocations to risk assets. Averages going into 2023 were reported as (percentages may not add up to 100 per cent due to rounding): public market equities (28 per cent), private equity (26 per cent), cash/cash equivalents (excluding US Treasuries) (12 per cent), fixed income (10 per cent), private real estate and infrastructure (( per cent), hedge funds (6 per cent), private credit (3 per cent) and commodities (1 per cent).

A substantial proportion of family offices reported planning to increase their allocations to the following asset classes over the course of 2023: 

Most family offices seem content with their geographic allocation, with strong focus on the US and other developed markets. While 26 per cent of the survey respondents planned to increase allocations to US markets, including 41 per cent of Asia-Pacific family offices, 27 per cent expect to increase allocations to other developed markets. 

Tony Pasquariello, Global Head of Hedge Fund Coverage and Co-Lead of One Goldman Sachs Family Office Initiative, said that family offices continue to carry meaningful allocations to alternatives, including private equity, private credit, infrastructure, real estate, and hedge funds.

In a comprehensive survey we conducted in 2021, on average 45 per cent was allocated to the alternatives bucket. Despite the challenges of 2022, in our most recent survey period, that allocation was virtually unchanged at 44 per cent,” he said.

“More broadly, considering the volatility and challenges of the past year, family offices have remained notably calm and their strategic asset allocations have changed only modestly,” Mr. Pasquariello added.

Residential offices

Residential real estate remains attractive to family offices, with roughly one-third planning to increase exposure to the sub-sector over the next 12 months, and another 30 per cent looking to maintain their exposure. 

Commercial real estate, particularly office and retail, is less attractive, as only 7 per cent of family offices are seeking to increase exposure to the office sector and 4 per cent to retail, with 12 per cent and 10 per cent, respectively, seeking to decrease exposure to these sectors.

Collectibles are also popular, with 38 per cent of family offices investing. This is driven by passion (71 per cent), while 39 per cent invest for diversification, and 19 per cent like having “trophies.” Art, wine, and aircraft were reported to be the most popular collectible choices.

While private credit currently represents only a small part of most family offices’ allocation at just 3 per cent, a notable proportion of respondents (30 per cent) reported that they expect to increase their allocation over the next 12 months.

Sustainable investments

Family offices broadly track the sustainability interests of other investors, with 39 per cent moderately to extremely focused on sustainable strategies, and 48 per cent invest directly in companies with social and environmental impacts. 

Clean energy is the most favoured theme, with 60 per cent of family offices expecting to deploy capital there in the next year. Other focus areas include sustainable food and agriculture and accessible health care.

Operations and structure

Nearly half (48 per cent) of family offices responding support the original wealth creator. When asked if the next generation influences investment strategy, 61 per cent reported no.

Meena Flynn said that the expected wealth transfer and changing dynamics in wealth creation are leading to a fundamental shift in the preferences of investors.

“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,” she added.