Goldman Sachs recently published its second Family Office Investment Insights report, a unique look inside the world of large-scale family offices. The global survey of 166 respondents highlights broad investment trends as well as more specific ramifications for strategies in the property sector.
Among their findings, Longview found some statistics that point to particularly interesting insights, namely:
More than 70% of family offices surveyed report a net worth of at least $1 billion. Large family offices increasingly resemble institutions. Indeed, approximately 50 of them are larger (by market capitalisation) than the average company in the FTSE All-Share index.
They have substantially proportionally higher holdings in alternative investments, including real estate. Forty-four percent of family office assets are in alternative investments, and, over the next 12 months, they expect to increase their allocation to alternatives even further.
More than 90% have in-house investment management capabilities. That’s because family offices are flexible, and unhindered by certain requirements. ‘Without the mark-to-market pressures from outside capital or stated benchmarks or mandates that other institutions may have,’ their attention to private investment is characterised in this context as ‘constructive.’
EMEA has more second- or later-generation founders or beneficial owners than the Americas and APAC, with the largest proportion (24%) founded pre-1980s. Managing the transfer of wealth between generations has always been an issue for UHNW families and their advisors. Nowadays ‘old money’ is increasingly on the agenda of public policy and potentially put under scrutiny by governments and tax authorities around the world.
Private real estate and infrastructure constitute 9% of the overall total investment allocation. Over the last three years, investment level in real estate stayed steady at an average of 10%, with no sign of that changing.
More specifically, the report’s findings regarding property investment, which is Longview’s area of focus and expertise, also point to opportunities.
When it comes to how family offices invest in alternatives, real estate is the most direct, with 54% of respondents foregoing the services of investment managers. Their analysis reflects the conventional view of the asset class:
‘As in 2021, our survey indicates that family offices tend to invest directly as their primary approach to private real estate. This may be due to their comfort with the asset class, given that many families generated their wealth in real estate or have experience owning and developing it. Additionally, we find that many view real estate as an effective store of wealth that can be transferred over generations, especially given its valuable potential tax-efficiency attributes.’
It’s no wonder, then, why respondents report that residential property, especially multi-family dwellings, is the most supported sub-sector of alternative investments. Thirty percent report they intend to increase their exposure to residential in the next 12 months. Meanwhile, since the pandemic and technology have reshaped how we work and shop, office and retail have fallen out of favour.
Real estate is seen by many as slow and steady—a long-term fixture in the traditional asset mix when considering factors of liquidity and time frame. For private investors property investment is usually regarded as a means of capital preservation and long-term growth. At the institutional level, though, yields are the benchmark and the time frame is that of the financing terms rather than the lifecycle of the underlying asset itself.
Nevertheless, the real estate sub-sector of alternative investments closely maps the overall average sector weightings among those family offices surveyed.
Since Goldman Sachs’ previous survey in 2021, family offices moved toward more cash; but the report suggests they are now looking to rebalance. Many (43%) admit their portfolios may currently be overweighted in information technology, and 34% are overweight in healthcare.
Thus, opportunities are always present if one knows where—and how—to look.
The report confirms that large family offices have a wide purview of market opportunities. Like any investor, they balance risk and return but with a bias towards wealth preservation. They also have unique freedom and flexibility. While they seem comfortable with property as an alternative investment there is more to explore. For example, we would like to hear more detail about:
- Whether property is a confident and constructive investment in their portfolios.
- What percentage of in-house resources is devoted to property investment.
- If they have sufficient specialist property capability or access to reliable and effective managers.
- How their property investment strategy aligns with their concerns about recession, geopolitics, and inflation.
While Warren Buffet’s maxim has always been to invest in what you know, within what he termed your ‘circle of competence,’ that doesn’t mean everyone has to be an expert in every domain. Successful family office staff can and do still benefit from advice, especially in complex or unfamiliar markets. Yet 60% report they have fewer than five employees on their investing team.
Most are likely to believe they understand the fundamentals of property investment. But by their very nature property markets are highly granular—unique in every jurisdiction with wide variance even across post codes. The ability to successfully navigate the contours of the sector is akin to having a sense of terroir in wine, which comes from first-hand local knowledge. In our experience working with family offices, the wise ones know to partner with trusted experts to ensure their investment journey is as smooth as the finest vintage.
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