A New Report Indicates How the Uber Wealthy Have Adjusted Investments
What are the uber-wealthy investing in? Goldman Sachs just released its annual Family Office Investment Insight Report titled Eyes on the Horizon. The report presents the perspectives of 166 investment decision-makers at family offices. This is interesting because the still turbulent investment climate has shifted dramatically over 12 months, and comparisons of family office (FO) portfolio construction with last year indicate the mindset of the FOs they entrust to implement large investment portfolios.
Who was Surveyed
A family office is a private wealth management firm that provides investment management, financial planning, tax and estate planning, and other services to ultra-high-net-worth families. Family offices are typically set up by families with assets of at least $100 million.
The Goldman report pulls information from FOs across the globe. It includes 57% in the Americas, 21% in Europe, and 22% in Asia-Pacific. Within the survey, 72% reported a net worth in excess of a billion.
What was Discovered
Family offices continue to concentrate on secular growth themes that could withstand economic cycles and create value over time: Worldwide, 43% of FOs believe that information technology is overweighted in their holdings, 34% of family offices plan to lighten up on healthcare.
Family offices still allocate a significant amount of money to alternatives. Of their average holdings 44% are made up of real estate, infrastructure, hedge funds, and private credit. While the markets are different behaving differently, the long-term view held by most is that they intend to roughly maintain their allocations over the next 12 months. The average allocation to private equity increased from 24% to 26%, compare this against the public market allocation, which declined from 31% to 28%.
For those that anticipate larger reallocations, several family offices anticipate expanding their investments in private credit, private real estate, and private infrastructure.
The hold-the-course mindset, focusing on long-term growth themes, also applies to geographic allocations, with a strong focus on U.S. markets. The U.S. represents 63%, and “other developed nations” average 21% of holdings. Interestingly, the report reveals that 41% of Asia Pacific offices included in the report expect to increase allocations to the U.S. in the next 12 months.
Despite the high inflation being experienced globally, 12% of portfolios are in cash and cash equivalents. This capital is expected to be deployed in non-cash investments by 35% of the respondents.
One clue as to where this may go is the finding that 39% of family offices plan to up their allocation in fixed income. In comparison to the start of last year, yields on fixed income investments are currently much higher.
In the category of digital assets, both cryptocurrencies and other blockchain-derived financial investments, 32% of FOs are currently invested here. This is a much deeper plunge into this asset class than had been reported in 2021 when just 16% held cryptocurrencies. However, a large portion is still uninvested in digital assets, and they don’t expect to be over the coming 12 months. This percentage of uninvested in digital assets that don’t intend to be has jumped from 39% to 62%. Those that had replied a year earlier that they might be interested in digital in the coming year was much higher at 45%. The current survey now has that expectation at 12%.
A full 42% of family offices don’t use traditional investment leverage.
Actual Change in Allocation
According to the Goldman Sachs report, providing venture capital is a popular among family offices worldwide. The lowest percentage of family offices with VC investments are from Europe, this compares with 86% in the Americas, and 91 in Asia Pacific.
Looking Forward
Private credit is a small part of the average family office portfolio at only 3%. What is noteworthy is that 30% of respondents said they expect to increase their allocation here in the next year. One reason this may be attractive to them is that the rates paid on these arrangements typically resets as interest rates move up or down.
“Sustainable” investments, particularly carbon transition related holdings, account for 39% of respondents that are focused on sustainable strategic investments. Among these, 48% invest directly in companies that they expect will have a positive environmental impact. The regulatory climate provides tailwinds for this investment category.
Expected Change in Allocation (Future)
Family office allocation to alternative investments is higher than the average household. The long-term time horizon, due diligence capabilities, and lower liquidity needs makes the higher allocation unsurprising. The turbulent economic environment has, for some, made this asset class more compelling. Private markets have been characterized by historically higher returns with less specific valuation changes.
Take Away
Family offices are private wealth management firms that provide customized services to ultra-high-net-worth families. Reviewing how teams of financial and investment professionals shift allocations at FOs is worth reviewing for a number of reasons. Chief among them is they control large sums of cash, so opportunities they are moving out of or into can help solidify market trends. There is also, of course, the tendency for investors to look a little closer when they see a professional or successful investor involved. This can at times, provide seeds for ideas on what to do within one’s own portfolio.
Some of the investments used by family offices require one to be an accredited investor. Do you know if you’re considered by the SEC as an accredited investor, one good way to know is by clicking here to get answers.
Managing Editor, Channelchek
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