Family offices are risk-on, too

What does generational wealth have to say about the apocalypse trade (if anything)?

• take a walk on the private side (don’t mind if I do)

• it’s weimer, baby—buy the gold, crypto, hard assets . . . and what?

• USA! USA! Fading the Fade America Trade (reprise)

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Family Offices are risk-on, too

Random Walk has mused lately about the ‘apocalypse trade,’ i.e. whether investors perceive storm clouds, and/or other big structural changes, and, of course, what they might be doing about it (and whether either of those things have manifested in asset-prices or other capital markets-y observations).

In that vein, I stumbled across this Family Office survey (from Goldman Sachs), and some of the results are on-point.

Family offices are a useful perspective here because

• (a) they’re generally motivated by wealth-preservation, more so than other more institutional or professional investors; and

• (b) they’re less (or differently) encumbered by some of the principal-agent problems that otherwise incentivize perma-bullishness in the ‘asset management’ ecosystem.

In other words, if Family Offices are worried, then their allocation decisions ought to reflect that worry because they’re already rich (and they want to keep it that way), and it’s their money that’s being allocated.

Anyways, this isn’t a long post.

Just a few of the best charts from the survey that touch on some of the apocalyptic stuff (or not).

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ICYMI

A bullish signal, and other interesting asides

'Someone else pay for my healthcare' is probably the worst idea ever

Of private cos and private credit

One narrow case for cuts

14 charts riffing on themes

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Take a walk on the private side (don’t mind if I do)

First, on the matter of “no exits for private capital,” and/or the “marks are too damn high,” how are family offices feeling about the broader universe of PE/VC and alts, generally?

Well, not too bad, really. I mean, I wouldn’t conclude that everything is roses, but family offices aren’t throwing the private markets (or professional investors) under the bus either.

And it’s not because Family Offices are out-to-lunch.

On the subject of valuations, for example, family offices definitely seem to understand that the marks are (still) too damn high:

Goldman Sachs

Nearly 80% of respondents expect valuations to stay flat or decrease—with just under a majority saying valuations will “decrease.”

In other words, the overwhelming majority of family offices think the marks are as good as they’re gonna get. (They’re also very concerned about ‘geopolitics,’ which we’ll get into below.)

So, if Family Offices think the marks are too damn high, they’re not going to keep throwing their dollars at pricey equities (or the managers who mark them), right?

Well, sort of, but not really.

Allocations have shifted away from PE/VC, but only by 5 percentage points from 2023.

5 percentage points is a ~20% change, which isn’t nothing, but given all the sand in the private equity gears, it’s not very much. It’s also hard to say how much of that allocation change isn’t simply a function of public equities appreciating a lot.

Going forward, there is certainly no planned exodus from private or public markets (or fund managers):

The increases outweigh the decreases for all of PE, public equities, and hedge funds.

Family Offices definitely intend to keep investing with funds and managers, and aren’t walking away from the stock market, either.

If they’re walking away from anything, it’s pure cash. When it comes to “cash and cash equivalents,” the decreases more than double the increases.

Now, ‘walking away from cash’ can mean a lot of things, including “it’s bullish out there,” and “perma-inflation is on the way,” (which, incidentally, are not necessarily inconsistent).

But, the latter possibility is more interesting at the moment, i.e. that FOs are afraid of cash because they’re worried the money printer is about to go brrrrrrr, and so they’re stuffing their money in gold in crypto, or something, right?

Fade America! Run for the emerging markets!

It’s Weimar, baby. Buy the Gold, crypto, hard assets!

Well, again, not exactly, but at least kinda?

First, 35% of American FOs aren’t positioning against tail-risk, at all—European-Middle East - Africa (14%) and Asian (12%) FOs are much less cavalier. The apocalypse is on the mind—mostly ‘geopolitical’ and inflation—but it’s not quite as pervasive, as one might expect.

Of those positioning for a tail-risk, Gold and Crypto are pretty popular alternatives . . . but so are UST:

Geographic diversification is the biggest hedge, but a quarter said gold, a fifth said UST, and 11% said crypto.

That some FOs are worried about a sovereign debt crisis and stuffing their money in gold and crypto is born out by the results. But that others are worried about something and just stuffing their money in USTs is also born out by the results.

Funny thing that.

Incidentally, with respect to crypto, it’s definitely getting more popular, but there are still plenty of hardcore holdouts:

“Yes, we hold crypto” have doubled in two years, from 16% to 33%.

44% still say “no and not interested.”

Interestingly, the region with the biggest room for crypto to run, is APAC, where the “yes” and “not yet, but but maybe later” is almost 80%. Europe is, predictably, the least adventurous.

OK, so there’s some evidence that the wealth-preservationists and long-term compounders are getting twitchy about the world-order, as we’ve known it. Pax Americana is over. Lose the dollar. Buy the Golds.

Fade America . . ?

U-S-A! U-S-A!

I mean, you knew where this was going, but no, Fade America is not a thing.

Lol, not even close.

Take a look at where Family Offices, from all over the world, are planning to allocate (or un-allocate):

• America is still overwhelmingly popular for FOs of all regions, but especially for American FOs, who are also, by and large, uninterested in other parts of the world (relatively speaking).

• And while every region has some homerism, European investors are more likely to say “no” to Europe, than to say “no” to the US, just like APAC investors are more likely to say “no” to China, than “no” to the US.

• There’s no longer time series here, but that ~20% of non-Euro FOs are a hard “no” to Europe (and an even harder “no” to the UK) is striking for the once-great civilization;

• Very few FOs (relatively) want exposure to the world’s growing population centers, Africa and India.

Make of that what you will, but the big takeaway here is that whatever the apprehension around Pax Americana, there is no “fade america trade” here.

Heck, there isn’t much of an apocalypse trade, generally. Some gold- (and crypto-) buggery, sure, but really everyone is long-and-longer equities.¹

For the generationally wealthy putting their money where their mouths are, it’s risk-on, baby, and the US (still) reigns supreme.

¯\_(ツ)_/¯

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Previously, on Random Walk

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1. More specifically, long tech, healthcare, and “stuff.”

AI is the Capex, and Fallen Healthcare Angels. Seems legit.