For the ultra-wealthy—those with at least $500 million in assets—2023 is all about being “risk-on,” with cash off the sidelines and put to work in public and private equity investments, according to a Goldman Sachs Global Private Wealth Management survey.
The survey was the second bi-annual “Eyes on the Horizon” report, designed to uncover trends among 166 Goldman Sachs family office clients around the world, where the threshold is $500 million in assets but 72% have at least $1 billion.
“As with our first report, our goal is that these findings can be helpful to both family offices and non-family offices alike,” the report’s authors wrote. “We consistently hear from clients that they want to learn from each other, and we are delighted to be able to facilitate this exchange of ideas alongside our own reflections.”
Three of the authors—Ken Hirsch, co-chairman of the global technology, media and telecom group, Meena Flynn, co-head of Goldman Sachs global private wealth management, and Sara Naison-Tarajano, global head of private wealth management capital markets—presented their findings last week in an online, press-only discussion.
“Despite the volatility and the challenges over the last year, this cohort of investors have really remained notably calm and their strategic asset allocation has only changed moderately,” Flynn said. “We see that family offices carry more cash balances than other institutional investors. It’s to be opportunistic. They can cover expenses, maintain their lifestyle, maintain their cash balances to cover capital calls.”
That, however, may start to change as those opportunities present themselves, she said.
The typical asset allocation going into 2023 for these families was 28% public equities, 26% private equity, 12% cash or the equivalent (excluding U.S. Treasurys), 10% fixed income, 9% private real estate and infrastructure, 6% hedge funds, 3% private credit and 1% commodities.
The sectors the families reported being most overweight in were information technology and healthcare.
“We find that our most sophisticated family offices really look to take advantage of the uniqueness of their capital. And what do I mean about that uniqueness of their capital? It’s permanent. It’s ultra-long duration,” Flynn said. “They can bear more illiquidity and more risk than other investors.”
As such, over the next 12 months, that allocation is expected to change, and 48% of families said they’d be increasing the public equities, 41% said they will increase private equity, 29% said they will increase fixed income, 30% said they will increase private credit and 27% said the same of private real estate and infrastructure.
Meanwhile, 35% said they’d be decreasing allocations to cash or the equivalent.
Investments in one particular asset class sets these family offices apart, even from the next tier down, and that’s alternatives. While other ultra-high-net-worth investors deploy about 20% to 25% of their investment capital in alternatives, family offices invest more heavily, with the average portfolio having 44% in private equity, private real estate and infrastructure, hedge funds and private credit, the report found.
And when it comes to crypto, it seems these investors have sorted themselves into two camps. While more family offices are invested in cryptocurrencies in 2023 than in 2021, the year of the inaugural survey, far fewer intend to invest in crypto going forward. The percentage who are in jumped from 16% two years ago to 26% this year, while those who said they still might consider the asset class fell to just 12% from 45%.
“While we have more family offices invested directly, we have less family offices interested,” Naison-Tarajano said. “And that leads to a conclusion, which is really that family offices seem to have made up their mind around cryptocurrency.”
In terms of investment style, 42% said they do not use leverage or margins in their portfolios.
Because much of the wealth that enables the family office comes from one or more businesses, the respondents reported remaining fully invested in that piece of family history, Hirsch said.
“Among those family offices involved in the family's operating businesses, 35% reported that they planned to hold those investments in perpetuity. So owned for cash flow, no transaction activity expected,” he said. “This may in part reflect the familiarity or emotional bonds to the businesses built and run by the family, but also reflect on the profile of the operating businesses that are favored by family offices—those exposed to attractive, long-term secular themes and those that produce attractive cash flow.”