Family offices set for "risk-on" asset allocations in hunt for returns

• More than 40% of family offices set to boost private, public equity allocations in 2023
• Goldman Sachs report finds family office allocations to alternative assets remain steady
• Higher interest rate environment boosts interest in private credit and fixed income

May 10 (Preqin News) - Family offices are set to reduce their cash holdings and boost allocations to riskier assets in the next 12 months as they pursue greater returns, according to a Goldman Sachs report.

Just over a third of family offices (35%) surveyed intend to redeploy cash or cash-equivalent holdings in the next 12 months, Goldman reported in its second Family Office Investment Insights Report. It highlighted that 48% of respondents plan to increase their allocations to public equities, and 41% to private equity.

“With the flexibility to invest across the risk spectrum, family offices have maintained a largely consistent approach to more aggressive allocations as they seek superior returns,” said Meena Flynn, Co-Head of Global Private Wealth Management and Co-Lead of One Goldman Sachs Family Office Initiative. “Planned risk-on allocations tell us they see strong opportunities to capture added alpha.”

Goldman surveyed 166 institutional family offices with net worth of at least $500mn (93%), and almost three quarters (72%) having at least $1bn. The survey was conducted between January 17-and February 23 this year.

Family offices intend to keep their overall alternatives allocation broadly on par with recent levels. The latest survey found that family offices on average have allocated 44% to alternatives, showing little change from the 45% reported in the first survey in 2021. 

“Family offices continue to carry meaningful allocations to alternatives, including private equity, private credit, infrastructure, real estate, and hedge funds,” said Tony Pasquariello, Global Head of Hedge Fund Coverage and Co-Lead of One Goldman Sachs Family Office Initiative. Family offices had remained “notably calm” amid recent volatility, making only modest changes to their asset allocation, he added.

Just under two-fifths (39%) of family offices plan to increase their allocations to fixed income in 2023, following a period of monetary tightening globally that has led to higher returns from the asset class. Entering 2023, family offices allocated 10% on average to fixed income.

That higher rate environment, combined with turbulence in the traditional banking sector, is also generating interest in private credit among family offices, who had allocated an average of 3% of holdings to the asset class as of the start of 2023. Looking ahead to the next 12 months, the survey found that 30% of family offices intend to increase their allocations.

“Following the Global Financial Crisis, banks pulled back from direct lending activity, and there is growing interest from family offices to fill this gap as private lenders,” said Sara Naison-Tarajano, Global Head of Private Wealth Management Capital Markets and Co-Lead of One Goldman Sachs Family Office Initiative. “Private credit is even more attractive in today’s environment given rising interest rates along with the quiet traditional financing markets across high yield and syndicated loan markets.”

Around a quarter (27%) of family offices intend to bolster allocations to private real estate and infrastructure, although in commercial real estate appetite is less strong: 7% of family offices plan to increase their exposure to office space, while 12% are seeking to decrease their allocations. For retail, 4% anticipate increasing allocations compared with 10% who plan to decrease. 

Of the 166 offices participating in the survey, 57% were based in the Americas, 21% in EMEA and 22% in APAC.