Family Offices deploy capital, but no longer encrypt

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More than a third of family offices plan to put money to work over the next year to take advantage of market upheaval, but few plan to invest in cryptocurrencies.

Family offices still have larger cash allocations than most other investors, but those balances are expected to shrink in the coming months, according to a Goldman Sachs report due out Monday.

Family office interest in crypto has changed significantly.

In 2021, 16% of family offices were invested in Bitcoin and other cryptocurrencies, while the 45% that did not own them were interested in them as potential future investments. This year, more family offices invested in crypto (26%), but only 12% of those who did not have it were interested. The number of families with no interest in crypto increased from 39% to 62%.

Wealthier families want lots of cash, for a variety of reasons. At the beginning of 2023, they had on average 12% of their assets in cash and cash equivalents (excluding Treasury bonds and other fixed-income securities) to cover capital calls for other investments, to support their lifestyle without having to worry about selling assets at depressed prices. prices, and to take advantage of new investment opportunities, according to Goldman.

Family offices plan to spend some of their money, which can now earn 4-5% risk-free. According to the survey, only 13% of family offices plan to increase their cash allowance this year, while 52% plan to keep it at the same level. The report was the second biennial survey of family office investments released by Goldman Sachs. It’s a distinct look at the portfolios of 166 family offices around the world, primarily those of multi-billionaire families. All of the family offices included in the survey are institutional in nature, with professional staff.

The cash picture is quite interesting right now. We’ve seen families want to stay in cash [and] really pay attention to what they do with their money. Because in an environment like the one we’re in now, with a little more uncertainty and a little more volatility, family offices like to be able to act on dislocation, said Sara Naison-Tarajano, global head of Apex, a Goldman Sachs Group dedicated to family office clients. She is also responsible for private wealth management capital markets at the bank.

I think that’s also a motivation for higher money. And I wouldn’t be surprised if those sales dwindle over the next six to 18 months, Naison-Tarajano said.

Almost half (48%) of family offices said they plan to increase their target allocation to equities, while 41% plan to increase their allocation to private equity. Thirty-nine percent expect to increase their investments in fixed income securities.

In their 26% allocation to private equity, family offices said they were spending 11% on buyouts and 8% on growth. They also allocated 7% to venture capital, where observers say some families have suffered losses investing directly in businesses and have slowed or stopped the practice.

Only 64% of family offices are invested in private credit, with an average allocation of just 3% at the start of the year, according to the report. But 30 percent of family offices are considering expanding their allocation to private credit, confirming reports earlier this year about their interest. (About 40% of institutional investors plan to increase their roster of managers over the next three years.)

We were entering this world where we could get double-digit returns in private credit, which makes after-tax returns much more attractive. [against] more moderate expectations for equities. We’re seeing customers spend more time really digging into private credit, Naison-Tarajano said.

Family offices have allocated an average of 4% of their wealth to a miscellaneous investment category, including collectibles. It may only be a small portion of their portfolios, but even a portion of those portfolios translates into significant dollars. Of the 166 family offices surveyed, only 27 were worth less than $1 billion; 41 had between $1 billion and $5 billion; 18 had between $5 billion and $10 billion; and 13 were worth more than $10 billion.

Unsurprisingly, the most popular collectibles were art and wine, but Goldman Sachs is increasingly engaging with family offices on their interest in acquiring stakes in sports teams and related assets, particularly those with ties to their hometown.

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