(Bloomberg) — Family offices that manage money for the ultra-rich are getting ready to unleash a stockpile of cash into public and private markets.
Almost half of the private investment firms responding to a Goldman Sachs Group Inc. survey said they plan to increase exposure to public equities, with 41% looking to increase allocations to private equity, the company said Monday in a statement.
“Family offices, for the most part, are really ‘risk-on’ for the next 12 months,” Meena Flynn, co-head of global private wealth management, said during a call with journalists.
About 12% of family office portfolios on average are in cash or cash equivalents, a level that’s higher than other institutional investors’ positioning, according to the report, which surveyed 166 firms globally. More than a third plan to decrease their allocation to cash over the next year.
“They can zig when others zag,” she said.
They’re among investors watching the standoff between the Biden administration and Republican lawmakers over the debt ceiling, which threatens to cause chaos in financial markets. Flynn said their managers will likely look to buy equities when market conditions are “painful.”
The number of family offices has ballooned worldwide over the past two decades, fueled partly by surging fortunes in technology, finance and real estate. The vehicles, which manage the personal capital of the ultra-rich, are lightly regulated and often as secretive as the families they represent.
Sara Naison-Tarajano, global head of private wealth management capital markets, said she expects the number of family offices to continue to grow. “They’re increasingly important as investors,” she said on the call.
Private Equity
About 9 out of 10 family offices that responded to the survey had a net worth of $500 million or more. Despite the wealth involved, 88% of family offices queried had 10 or fewer investment employees.
Family offices are expected to continue to invest in private equity, an asset class they’ve favored in recent years. Respondents had a 26% exposure to private equity, on average, and 9% to private real estate and infrastructure.
Family offices are especially drawn to the private equity secondary market, where institutional investors can buy existing stakes in funds or companies, Flynn said. Investors such as endowments may be looking to reduce their exposure to the private markets because of limits on those holdings, she said.
Private credit has also become increasingly attractive to family offices given higher interest rates. With 10% annualized returns over the past decade, such debt has outperformed public loans in that span, according to Goldman Sachs Asset Management.
Private credit accounted for about 3% of family office portfolios on average, but 30% of survey respondents said they expected to increase exposure.
‘Home Bias’
“This is going to continue to be a really interesting space for our clients” in the next six to 18 months, Naison-Tarajano said.
The survey also found what the bank called “home bias” in investment choices. Family offices based in the Americas allocated just over three-quarters to the US, while firms in Europe, the Middle East and Africa directed almost equal proportions to the US and other developed markets. Those in the Asia-Pacific region have comparatively much more allocated to China.
Some changes in geographic strategies could be afoot in the coming year amid a “continuing focus on regional diversification and safe havens, driven by concern about strained relations between China and Western countries,” according to the report.
Another area of investment interest for family offices includes so-called collectibles, with the greatest allocations to art, wine and aircraft. Goldman said it’s also increasingly working with families seeking to acquire stakes in sports teams, particularly with hometown ties.
