A trader works on the floor of the New York Stock Exchange (NYSE) in New York, United States, May 4, 2023.
Brendan Mcdermid | Reuters
At a time when many investors are pulling out, 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 buy stocks this year, according to 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 stacks to work as inflation, rising rates and falling equities create new opportunities.
“Family offices, for the most part, are really at risk 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’re really trying to prepare themselves in terms of their asset allocation to be able to do that.”
(See here for the latest CNBC PRO interview with Family Office Investor)
Currently, the family offices surveyed held 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 also hold plenty of cash to hold as dry powder for bargains as markets decline and valuations drop in commercial real estate and private companies. Family offices surveyed have 12% of their assets in cash, slightly above 2021 levels. shares.
Goldman says family offices have mostly not sold their shares – but are waiting for attractive levels to use their cash to start buying more shares this year.
“Family offices are very sophisticated in their analysis of what the markets have done over time,” said Sara Naison-Tarajano, global head of capital markets at Private Wealth Management. “The concept of staying invested is very important to the family office community. They understand that these stocks will come back for the most part. We have certainly seen it through the global financial crisis and we have seen it during the market correction of 2020.”
One of the fastest growing areas for family offices is private credit. With regional banks scaling back their lending, more businesses are turning to private credit — funds, investors, and nonbank institutions that lend directly — for their capital needs. The private credit market, which currently stands at around $1.4 trillion, is expected to grow to $2.3 trillion by 2027, according to Preqin.
With double-digit returns thanks to higher interest rates, as well as strong cash flow, Naison-Tarajano said family offices are keen 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 that creates an opportunity for others to enter the space and make loans,” she said. declared. “Family offices love to be opportunistic on dislocations. They want to act when the market is more dislocated.”
Flynn adds, “It’s an opportunity that hasn’t been this enticing in decades.”
Because family offices have so much cash and are typically under-leveraged, with little debt, they can be nimble and quick with loans, giving them an edge over lender types. Of course, this also carries risks. Goldman said most family offices work with expert managers or investable funds to avoid potential loan blasts.
“You don’t see a lot of clients who have never done private credit doing their own launch,” Naison-Tarajano said. “They recognize it requires the chops and expertise that credit managers have.”
Goldman said family offices also see opportunities this year 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 step in as distress and defaults begin to mount.
“People are really preparing for what’s probably going to be a two-year opportunity, at least to be able to lend to real estate stocks, to lean on real estate stock managers and really be the lender there and potentially lend to own,” Flynn says.