At a time when many investors are pulling back, family offices are moving into "risk on" mode, with plans to buy more stocks and alternative investments this year, according to a new survey.
Nearly half (48%) of family offices plan to purchase stocks this year, according to the Goldman 2023 Family Office Investment Insight Report. The report, based on a survey of 166 family offices around the world with at least $500 million in assets, also found that family offices plan to put their large cash piles to work as inflation, rising rates and falling stocks create new opportunities.
"Family offices, for the most part, are really risk-on for the next 12 months," said Meena Flynn, co-head of Global Private Wealth Management at Goldman. "They can 'zig' while others 'zag.' And they really try to prepare in terms of how they allocate their assets to be able to do that."
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Currently, the family offices surveyed had nearly half (44%) of their holdings in fixed income and alternative investments, with 26% in private equity, 9% in real estate and infrastructure, 6% in hedge funds 3% in private credit, and 5% in commodities and other investments.
They are also keeping plenty of cash to hold as dry powder for bargains as markets decline and valuations come down in commercial real estate and private companies. The family offices surveyed have 12% of their assets in cash, slightly higher than 2021 levels. They have 28% of their holdings in publicly traded stocks, which was down from 31% in 2021 — likely due to falling stock prices.
Goldman says family offices for the most part haven't sold their equities — but are waiting for attractive levels to use their cash to start buying more stocks this year.
"Family offices are very sophisticated in their analysis of what markets have done over time," said Sara Naison-Tarajano, global head of Private Wealth Management Capital Markets at Goldman. "The concept of staying invested is very important to the family office community. They understand that these securities for the most part will come back. We certainly saw that through the global financial crisis and we saw that in the market correction of 2020."
Interested in private credit
One of the hottest growth areas for family offices is private credit. With regional banks pulling back on their lending, more and more companies are turning to private credit — funds, investors and nonbank institutions that make loans directly — for their capital needs. The private credit market, now at about $1.4 trillion, is expected to reach $2.3 trillion by 2027, according to Preqin.
With returns in the double digits thanks to higher interest rates, along with strong cash flow, Naison-Tarajano said family offices are eager to invest in private credit and better understand the sector.
"Regional banks have been one of the lenders of choice for some of these private credit opportunities, and it creates an opportunity for others to come into the space and make loans," she said. "Family offices love being opportunistic on dislocations. They want to act when the market is more dislocated."
Adds Flynn, "This is an opportunity that hasn't been this attractive in decades."
Because family offices have so much cash on hand and are typically underleveraged, with little debt, they can be agile and quick with loans, giving them an advantage of over types of lenders. Of course, it also carries risks. Goldman said most family offices are working with expert managers or funds to invest to avoid potential loan blow-ups.
"You don't see a lot of clients who have never done private credit doing their own launch," Naison-Tarajano said. "They recognize that it requires the chops and expertise that credit managers have."
Goldman said family offices are also seeing opportunity this year is in "secondary private-equity," where private equity investors sell their private equity positions to other investors in a secondary market, often at a discount. Real estate is another sector where family offices are poised to jump in as distress and defaults start to increase.
"People are really getting ready for what's probably going to be a two-year opportunity, at least to be able to lend to real estate equity, to lean into real estate equity managers and really be the lender there and potentially loan to own," Flynn said.