Strategy

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

Tom Burroughes, Group Editor, July 22, 2021

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The report showed, among other details, that more than 90 per cent of respondents invested in venture capital, highlighting its popularity, and perhaps a sign of how such "patient capitalists" are a good fit for VC.

Inflation and a prolonged low-rate environment are on the minds of the majority of more than 150 family office figures surveyed recently 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 considering 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, the 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 said how much assets they have. 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. Thirty-five per cent had six to 10 people; 7 per cent had 11 to 20 people and 8 per cent had more than 20 people working in this capacity. As far as operational teams were concerned, 45 per cent of respondents had fewer than five people; 30 per cent had six to10 people; 13 per cent had 11 to 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 have experience in this field already. 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 of the respondents said 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 skeptical of cryptocurrencies as a store of value.

Breaking down family offices’ asset allocations, the Goldman Sachs report said that 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 is that 80 per cent of respondents globally said capital appreciation for multigenerational wealth transfer was a primary mission of their family office. The second most prevalent mission was wealth preservation cited by more than 50 per cent of respondents globally.

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

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