Where Are Family Offices Seeking Higher Returns?

Episode Summary

Executive Summary: Goldman Sachs’ discussion on family offices explains how these wealth managers have grown more professionalized, flexible, and influential across public and private markets. The panel highlights their long-term, mission-driven approach; large allocations to alternatives, real estate, venture, and direct deals; rising interest in ESG and digital assets; and why their patience, agility, and capital flexibility make them attractive partners for companies and investors.

Main Topics: What family offices are and why they matter (Priority: 5/5): Family offices manage the wealth, governance, taxes, estate planning, and investing needs of wealthy families, combining institutional-like organization with a multigenerational mission and a highly customized client mandate. How family offices invest: long-term, liquidity-aware, and barbelled (Priority: 5/5): They tend to emphasize illiquids and alternatives alongside substantial cash balances, enabling opportunistic buying during volatility and a lower reliance on mark-to-market performance. Macro positioning: inflation, currency debasement, and low rates (Priority: 4/5): Tony describes three dominant macro concerns shaping portfolios: inflation risk, currency debasement, and persistent low interest rates, which are driving demand for hard assets, commodities, digital assets, and equities. Real estate as an inflation hedge and flexible capital deployment (Priority: 4/5): Mina explains that family offices often invest directly in real estate where they have knowledge, favoring durable stores of value, cash-flowing assets, niche markets, and selective credit exposure. Alternatives, private equity, and venture capital (Priority: 5/5): The panel stresses that family offices are deeply engaged in private markets, including direct investments, co-investments, PE partnerships, and venture, because these fit their long-duration capital and return goals. ESG and the next generation (Priority: 4/5): ESG is increasingly integrated into family office investing, workplace policy, and philanthropy, with especially strong interest in clean energy, food/agriculture, and impact-oriented strategies. Digital assets and blockchain exposure (Priority: 4/5): Family offices are increasingly considering crypto, especially Bitcoin and Ether, while balancing enthusiasm for potential inflation hedging and technology upside against volatility, custody, and regulatory concerns.

Key Arguments: Family offices are unique investors because they combine institutional discipline with family-specific governance, mission, and long-term capital preservation goals. Their lean teams and lack of outside LP pressure make them nimble, patient, and willing to hold assets for generations. A barbelled portfolio structure—high allocations to illiquids plus high cash—helps family offices act as buyers when other investors are forced sellers. Inflation and currency debasement concerns are pushing family offices toward hard assets, real estate, commodities, and selective direct ownership. Alternatives are attractive because private markets can generate excess return, and family offices can tolerate illiquidity better than many other investors. Family offices are natural partners for PE firms and sellers because they can provide flexible, long-term, and sometimes certainty-enhancing capital. Venture interest is high, but access constraints push many family offices to invest via funds, fund-of-funds, or strategic direct deals. ESG adoption is rising due to both values and returns; it is being implemented through workplace policies, philanthropy, and investment mandates. Digital assets appeal for asymmetric upside and possible inflation protection, but adoption is tempered by uncertainty around valuation, custody, and regulation.

Data Points: Families with fewer than five investment professionals: 50% - Shows how lean many family office investment teams are relative to the asset bases they oversee. Allocation to alternatives among institutional family offices: 45% of assets - Survey finding showing the outsized role of private markets and other alternatives. Families where capital appreciation is the primary mission: 80% - Indicates that growth and wealth expansion are central goals for most surveyed family offices. Family offices with interest in ESG in EMEA: More than 80% - Regional survey result showing EMEA leads ESG focus among family offices. Family offices with exposure to cryptocurrencies: 15% - Current exposure level reported in the survey. Family offices considering adding cryptocurrency exposure: 45% - Shows strong future interest despite remaining concerns. Private equity annualized return over 10 years (illustrative S&P 500 comparison context): Roughly 16% annualized; 469% total return - Tony uses public market returns to illustrate the value of staying invested over time. Impact of missing the 50 best days in the S&P 500 over 10 years: Basically flat - Used to underscore the cost of market timing. Value added by a median private equity manager: About 2.5% per year - Illustrates potential incremental return from private markets. Value added by top quartile private equity managers: Roughly 7.5% per year - Highlights dispersion and upside in private equity manager selection. Private ecosystem size: Exceeds $7 trillion - Supports the view that many companies are staying private longer and creating value before IPO. Seed-stage startup funding in H1 2021: $6 billion invested in more than 3,500 seed-stage startups - Evidence of abundant capital flowing into early-stage private companies. North America venture capital investment in H1 2021: More than $155 billion - Shows the scale of venture activity and why family offices are attracted to the space.

Pivotal Quotes: "Family offices are institutions that manage the wealth of an individual or a group of individuals, really with the goal of delivering on that family's missions, values, protecting their wealth today and for generations to come." — Sarah Nason-Terahano: Defines the core purpose and multigenerational orientation of family offices. "The result, and we really saw this in March 2020, is that when markets are volatile, family offices can acquire assets when other investors are sometimes forced sellers." — Sarah Nason-Terahano: Explains how their cash-heavy, long-term structure creates opportunity in stressed markets. "Family offices are very attractive investment partners or buyers of companies that are selling minority or control positions." — Ken Hirsch: Summarizes why sellers and private equity firms value family office capital.

Implications: Family offices are becoming more influential allocators of capital and preferred partners in private markets. Their long horizons, flexibility, and appetite for alternatives, ESG, and digital assets may shape deal flow, valuations, and innovation across industries.