Family Offices Ponder Inflation Risks, Prolonged Low Rates - Goldman Sachs

Editorial Staff

22 July 2021

Inflation and a prolonged low-rate environment are on the minds of the majority of more than 150 family office figures recently surveyed by Goldman Sachs. Among those who think inflation will rise, about a third hold hard assets such as property, and almost half who think low rates will persist are thinking of putting money into operating businesses.

The report, Widening The Aperture: Family Office Investment Insights, also showed that almost universally, respondents have some exposure to private equity, with family offices in Europe, Middle East and Africa, and Asia, more likely to go via funds rather than invest directly.

Some 54 per cent of respondents were in the Americas, 23 per cent in Europe, the Middle East and Africa, and 23 per cent in Asia. About 80 per cent of respondents revealed the value of their assets: some 22 per cent said they had $5 billion in AuM or more; 44 per cent had $1-$4.9 billion; 20 per cent had $500-$999 million; 7 per cent had $250-$499 million and 6 per cent had less than $250 million.

When it comes to managing investments, 56 per cent of the respondents did so in-house; 39 per cent adopted a “hybrid” approach and 4 per cent outsourced this work. Some 1 per cent said the question didn’t apply. By far the largest share of respondents – 50 per cent – said they had fewer than five people in an investment team. 35 per cent had 6 to 10 people; 7 per cent had 11-20 people and 8 per cent had more than 20 people in this role. As far as operational teams were concerned, 45 per cent of respondents had fewer than five people; 30 per cent had 6-10 people; 13 per cent had 11-20 people and 11 per cent had more than 20.

Other findings
Most respondents invested directly in private property, showing that this was an area where family offices like to take a more hands-on approach, particularly if they already have experience in this field. Venture capital investing is “top of mind,” the report said. More than 90 per cent of respondents said they invested in VC. By contrast, respondents’ exposure to private credit is lower relative to other alternative investments.

Almost half respondents said that they are thinking of moving into digital assets such as bitcoin although most are not currently in this space. Their main reason for caution is that they are sceptical that cryptocurrencies are a store of value.

Breaking down family offices’ asset allocations, the Goldman Sachs report said public market equities comprised 31 per cent of total holdings, while cash and fixed income made up 19 per cent, and alternatives accounted for 45 per cent. (Within the alternatives bucket, private equity accounted for 24 per cent, real estate 11 per cent, hedge funds 6 per cent; private credit 4 per cent, commodities 1 per cent and “other” 5 per cent.)

Capital protection and growth
The report said that a dominant theme globally is that 80 per cent of respondents said capital appreciation for multigenerational wealth transfer was a primary mission of their family office. The second-most-prevalent mission was wealth preservation at more than 50 per cent of respondents globally.

Other top priorities (respondents were able to select up to three total) included diversification of concentrated wealth or single stock exposure (29 per cent of respondents), legacy creation through philanthropic endeavours (23 per cent), development and/or acquisition of operating businesses (19 per cent), and succession planning (16 per cent).