Family office 'overwhelmingly overweight' in developed markets investments: Goldman Sachs partner

Sara Naison-Tarajano, Goldman Sachs Global Head of Private Wealth Management Capital Markets, joins Yahoo Finance Live to discuss where Goldman Sachs family offices are investing according to a survey, cryptocurrency investments, and the company's outlook based on investment trends.

Video transcript

- Goldman Sachs getting the pulse of where the ultra wealthy are looking to invest this year. Joining us now is Sarah Naison-Tarajano, Goldman Sachs Global Head of Private Wealth Management Capital Markets. Sara, it's great to see you here. So you're out with the new report. You spoke to a number of family offices. One of my big takeaways from this report was this risk on attitude, the sentiment that you guys found speaking with all these family offices. What do you think is driving that?

SARA NAISON-TARAJANO: Yeah, and I would say, look, the reason that we've talked about this risk on sentiment is that we see a number of families talking about looking to invest in equities in the future even more. So 48% say they're prepared to invest in equities in the future in the next 12 months and over 40% in alts. I think that really comes down to family offices being a very nimble investor based who can act when others are running away from the market.

You have to remember, they aren't answering to a set of outside investors. They don't have to worry about redemptions the way other investors do, so they can be in a position to act. And I think they are prepared to do so upon dislocations.

- So Sara, I wanted to ask you. Was there anything that surprised you in terms of this data? Because, for instance, my perspective, when I was looking at the geographic allocation going forward and I saw that only 26% of respondents plan to increase their allocation to US markets, talk to us about the breakdown of where they're looking to put their money, and was there anything that surprised you?

SARA NAISON-TARAJANO: Yeah, I would say, overall, in terms of the results of the survey, one thing I'll just start with is, actually, the allocations have stayed quite similar from our last paper published in 2021. And I think this is really a testament to family offices being patient capital, and also, the lack of leverage in the system. So there hasn't been a need to really shift significantly the asset allocations. When we surveyed this group in 2021, they had 45% in alternatives. Today, they have 44%.

In terms of why we don't necessarily see a higher move to the US, that is because this family office group is overwhelmingly overweight, the US in developed markets. And if you look at the US investors, in particular, they have 77% of their capital already in the United States. So I think the focus, particularly in a more volatile environment that we've seen for the last six months, is to stay invested in developed markets.

- Sara, how are you advising clients in this very uncertain environment given the fact that we had the debt ceiling showdown down in DC, and also, this higher rate and higher for longer, it seems like, environment here from the Fed?

SARA NAISON-TARAJANO: Yeah, look, it's a great question. I would say our advice to clients is to really be calm, and that's what we've seen. When we think about our role as advising clients, it's about preservation of capital, and when you think about what it takes to reverse capital, what really impacts the preservation of capital is permanent loss. And when you're a for seller, that creates permanent loss.

So we're advising clients to stay calm through these cycles. Look, they've experienced it through COVID when the market dislocated significantly in March 2020. They saw it in the great financial crisis, and I'll just throw a stat at you. And I tell this stat to our clients all the time. If you look back at the performance of the equity market from 2009, until today from Summer 2009, if you were out of the market for the 50 best trading days, that's 50 trading days in, what, almost a 15 year period? You would have given up 100% of the return of the equity market.

And if you had been out the 10 best days, you'd give up almost half the returns of the equity market. So what we're telling clients is don't panic, look at dislocations as ways to create further exposure. I will say that our family offices are really disciplined and focused right now. The bar for investing is high, and I would say we definitely have more muted equity market return expectations over the next six to 12 months.

So you've probably heard us talking about this, but we're spending time on things, like private credit, given that you can get to double digit returns in private credit today. And that's an area, I think, our family offices are spending a lot of time with in equities. They're really focused on balance sheet, path to profitability, margins. There's a lot of discipline around making sure they're invested in companies that can weather the storm of market dislocations.

- Sara, you mentioned 2009. Back then, crypto was a blip. Let's talk about alternatives in general, and what is the feel-- you also mentioned private credit as well. What is the sentiment around crypto and alternatives in general?

SARA NAISON-TARAJANO: Yeah, that's actually a great question, and when you ask me what surprised me most, that might be-- I'll start with crypto, and then we'll talk about alternatives. I would say the crypto response surprised us a little bit. What we found on crypto is that family offices have really made up their mind about crypto. So if you read the report at first glance, in 2021, we only saw 16% of our family offices invested in cryptocurrencies.

Today, that number is 26%, so you might see that and say, well, more people are invested in crypto. But actually, if you look at how many people were invested for the future, that went from 45% in 2021 to only 12% today. And what I'd say about crypto is we've got a group of family offices that absolutely understand the space. They're comfortable with the volatility. Many of them have experience as public market investors and can manage that volatility, but I would say less families are engaged in crypto than they were in 2021.

The picture for alts-- sorry, just real quick, the picture for alts is a little bit different. Our families are very comfortable with illiquidity, and what I would say about that is when you have family offices with significant pools of capital, they've seen the outperformance of alternatives over cycles versus public assets. They're comfortable with that illiquidity. It allows them to be patient. They definitely take a vintaging approach, where they look to add exposures each year to sort of average into their exposures in alts. And as I said earlier, these family offices have some of the largest allocations that we've seen to alts in investor base, so 44% of their assets in alternatives.

- All right, we've got to leave it there, Sara Naison-Tarajano of Goldman Sachs. Thanks so much for joining us.