The Rise of Family Offices as an Investment Force
The article below is from our BRIEFINGS newsletter of 26 November 2019
Family offices have become one of the fastest-growing investors within the asset management industry. We sat down with Goldman Sachs’ Sara Naison-Tarajano, head of Apex, the firm’s dedicated family-office coverage team in the Consumer and Investment Management Division (CIMD), and Meena Flynn, CIMD’s global head of the Markets Solution Group and one of the partners leading the cross-divisional family-office initiative, who shared their perspectives on the industry.
Apex recently hosted its second annual Family Office Symposium in New York. What were some of the key takeaways?
Sara Naison-Tarajano: The goal of the symposium was to provide family-office CIOs and owners with content ranging from investing and macroeconomic trends, to trading and impact investing. Based on the responses of more than 140 attendees, investors were highly focused on direct investing, with two of the most popular sessions focused on investing in the private markets and investing in real estate. We also saw a lot of interest in topics focused on social impact investing, such as sustainable food systems. In fact, we estimate about one-third of family offices industrywide are now involved in impact investing, with interest in environmental, social and governance investing expected to increase as the next generation of family members assumes control.
How do family offices fit within the world of asset management? What’s driving their growth?
Sara Naison-Tarajano: Family offices have become an increasingly powerful force within asset management, especially in the private markets. A favorable macroeconomic backdrop, rising mergers-and-acquisition activity and increasing valuations in the private markets have spurred individuals to sell their businesses at attractive valuations, creating demand for advisory firms that work with family offices. Meanwhile, a growing number of hedge fund owners—faced with succession planning, hefty operational costs and other pressures—are returning outside capital and converting to family offices to manage their own funds. The desire to preserve family wealth and create a legacy through philanthropic giving is yet another catalyst.
How are family offices emerging as an investing force?
Sara Naison-Tarajano: As family offices increase in size and assets under management, they’ve become more institutional in their approach and are often competing directly with private equity investors, venture capital firms and pension funds for many of the same investment opportunities, often in the private markets. Some family offices are even taking in outside capital. Based on our experience, we’ve often found that the family office owner tends to have experience and confidence in his or her ability to make transformative investment decisions, in part, because they’ve spent their lives building and running multi-million dollar businesses. As investors, they tend to be generalists, sector agnostic and opportunistic. In addition, because family offices don’t have to report to a board of directors, investor group or regulators, they’re able to be more flexible their investment approaches.
Meena, you’re one of the partners leading an initiative to better service select family office clients by aligning the company’s divisions to work in concert with each other. How has the growth in family offices changed the way that firms work with them?
Meena Flynn: Family offices typically prefer to develop a single, long-term relationship with a senior professional at the firm who can navigate and harness the resources of the firm on their behalf. What’s more, their financial needs are global, complex and multi-faceted. From the clients’ perspective, they view Goldman Sachs as one firm, so we’ve made a concerted effort to reorganize ourselves according to that view. As part of a new family office initiative, we’ve put together small teams that cover clients holistically and offer comprehensive services from across the firm – ranging from investing and lending, investment banking, trading and risk management, to custody and philanthropy services.