Goldman Sachs Releases 2023 Family Office Investment Insight Report

• Goldman Sachs’ second-ever ‘Eyes on the Horizon’ report shows institutional family offices increasing “Risk-On” allocations in next 12 months across asset classes; interest in crypto wanes

NEW YORK, May 8, 2023 - The Goldman Sachs Group, Inc (NYSE: GS) today announced the launch of the 2023 Family Office Investment Insight Report which reveals 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 second Goldman Sachs Family Office Investment Insights Report, Eyes on the Horizon, fielded January 17-February 23, 2023, surveyed 166 institutional family offices with net worth of at least $500 million (93%), 72% having at least $1 billion.

“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.”

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% due to rounding):

• 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

Family offices reported the sectors in which they are most overweight are information technology and health care – secular growth themes with the potential to endure business cycles and drive value over the long term.

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

A substantial portion are putting cash to work: 35% of survey respondents plan to decrease allocations to cash and cash equivalents (excluding U.S. Treasuries). Only 10% plan to decrease public market equities, 13% to decrease private equities.

Across asset classes covered by the survey, most family offices invest through specialized managers rather than directly. The key exception is private real estate, where ultra-high net worth families may feel they have a greater affinity for the asset class.

Most family offices seem content with their geographic allocation, with strong focus on the U.S. and other developed markets – 26% of respondents plan to increase allocations to U.S. markets, including 41% of Asia-Pacific family offices, while 27% expect to increase allocations to other developed markets. This may signal reticence to invest in regions where perceived risks are higher and outweigh potential risk-adjusted returns available closer to home.

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

Allocations to Alternatives

Alternatives remain a major focus for family offices, with an average total portfolio allocation of 44% across alternative asset classes versus other ultra-high net worth individuals who typically allocate around 20-25% of their portfolio to alternatives depending on their risk tolerance.

This speaks to family offices’ return hurdles, sophistication and multi-generational investment horizons, along with the higher potential returns available through private markets. It may also forecast the increasing role family offices will have as limited partners in new fund raises and as potential direct co-investors in attractive private investment opportunities.

“You cannot avoid bad cycles, but by being consistent in your commitments, you will not miss the great cycles, and over time you should achieve the outperformance alternatives can deliver,” said Sara Naison-Tarajano, Global Head of Private Wealth Management Capital Markets and Co-Lead of One Goldman Sachs Family Office Initiative. “In the past, steady economic growth led to relatively predictable outcomes. With private market valuations under pressure and a slowdown in public listings, managers’ experience and abilities to drive value and navigate market cycles will be crucial.”

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% looking to maintain their exposure. Commercial real estate, particularly office and retail, is less attractive, as only 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.

Collectibles are also popular, with 38% of family offices investing. This is driven by passion (71%), while 39% invest for diversification, and 19% 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%, a notable proportion of respondents (30%) reported that they expect to increase their allocation over 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.”

Crypto and Digital Assets

More family offices are invested in cryptocurrencies than in 2021 – 26%, up from 16% – but only 12% expressed potential future interest, down from 45%. The extreme crypto market volatility of the past year seems to have cooled their interests, as 62% report being not invested and not interested in crypto in the future, up from 39%.
The broader digital assets ecosystem is a key focus. Among family offices, 32% are invested in digital assets, the most-cited rationale being their “belief in the power of blockchain technology.”

Sustainable Investments

Family offices broadly track the sustainability interests of other investors, with 39% moderately to extremely focused on sustainable strategies, and 48% invest directly in companies with social and environmental impacts. Clean energy is the most favored theme, with 60% of family offices expecting to deploy capital there in the next year. Other focus areas include sustainable food and agriculture and accessible health care.

Operating Businesses

Globally, 76% of family offices support families with operating businesses. Within that cohort, 44% of family office decision makers reported that they remain involved with those businesses. Of that group, 35% plan to hold the business in perpetuity, well beyond the typical five- to seven-year expectation typical of other institutional investors.
“While some families may separate family office and family business activities, clients often view them as a united complex,” said Ken Hirsch, Co-Chairman of the Global Technology, Media & Telecom Group, within Global Banking and Markets and Co-Lead of One Goldman Sachs Family Office Initiative.

“Clients often leverage the family office for the benefit of their operating businesses in ways such as providing growth capital at attractive entry points or using family office assets to generate borrowing capacity for existing or new operating business activities,” Mr. Hirsch added.

Among those involved in the operating business, 56% said an “attractive valuation” would be a catalyst to sell. In the event they do sell, family offices would prefer a strategic or corporate as a buyer (42%) or an institution (22%), perhaps indicating an inclination for those perceived as more likely to offer a premium valuation. For 25% of the cohort, the buyer profile is not important, which may also point to valuation-driven motivation.

While roughly one-third of family offices globally indicated that investing in family-owned business was central to their investing philosophy, only 11% indicated a preference to sell to another family.

“We often see family offices emerge as preferred buyers in situations where the seller may value the added layer of privacy they bring, or the sense of legacy associated with family offices,” said Mr. Hirsch. “In periods of challenging market dynamics, family offices continue to stand out for their stable pools of capital, long-term investment horizons, and ability to be very efficient decision makers and creative solution partners.”

Operations and Structure

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

“The expected wealth transfer and changing dynamics in wealth creation are leading to a fundamental shift in the preferences of investors,” said Ms. 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.”
Family offices generally run lean, 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. Nearly half (49%) reported managing the majority of their investment needs in-house, with 44% employing a hybrid approach of in-house and outsourcing.

Survey Methodology

The survey focuses on family offices that most closely resemble institutions: more than 70% of respondents have a net worth of at least $1 billion and more than 90% have in-house investment management capabilities. It sampled the views of family office decision makers, frequently the chief investment officer. Responses were collected from January 17 to February 13, 2023, via an online quantitative survey distributed to family offices by email. A total of 166 distinct family office decision makers participated globally: 57% based in the Americas, 21% in EMEA and 22% in APAC.

Goldman Sachs Focus on Family Offices

“Institutional family offices have become critical players in both public and private markets and have complex and bespoke needs. At Goldman Sachs, our approach is to place these clients at the center of everything we do, bringing-to-bear the world class intellectual capital and expertise that we uniquely have across all our businesses. We believe this integrated approach drives a more comprehensive experience for these clients, which they find especially important,” said Kim Posnett, Head of Global Technology, Media and Telecommunications (TMT) Investment Banking at Goldman Sachs and Co-Head of One Goldman Sachs.

About Goldman Sachs

Goldman Sachs is a leading global financial institution that delivers a broad range of financial services to a large and diversified client base that includes corporations, financial institutions, governments and individuals. Founded in 1869, the firm is headquartered in New York and maintains offices in all major financial centers around the world.