Sustainability and Sustainable Development
Family offices recognise that their investments can play a significant role in addressing environmental issues, which is why the sustainability aspect is becoming increasingly important. There is a need to combine deeply rooted principles and the formative culture of business families with innovation and change.
According to a study by JP Morgan, about three-quarters of respondents said they engage in philanthropy to have a positive impact on the local and global community. In contrast, only seven percent are philanthropic out of faith.
The trend is towards investing in line with family values, generating returns, and positively impacting society and the environment.
In 2022, approximately 47 percent of North American family offices invested in sustainable investments, up from 34 percent in 2021. Sustainable investments account for an average of 20 percent of family offices’ portfolios, an increase of two percent year-over-year. This share is expected to rise to 31 percent within five years.
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Investments in technology remain popular
A survey by Goldman Sachs found that nine out of ten family offices invested in secular growth themes. According to Sara Naison-Tarajano, global head of Goldman Sachs Apex and Private Wealth Management Capital Markets, it is not surprising that investments in information technology and healthcare are the most prevalent, as they offer investors a “clear path to profitability”.
39 percent of family offices plan to increase their holdings of fixed-income securities in this area over the next 12 months as interest rates continue to rise.
Direct investment in Companies
In a survey of family office members conducted at the Berenberg Single Family Office Conference 2022 with 70 participants, 78 percent said they would like to increase their exposure to private equity. Also, 55 percent of the participants would like to expand or even build up their direct investment portfolio.
Ken Hirsh, partner at Goldman Sachs and co-head of global banking and markets for the firm’s family office initiative, says investing in other family businesses is popular because of a combination of steady cash flow, familiarity, and emotional ties. One-third of the family offices surveyed said that investing in family businesses was a key part of their investment philosophy.
Hirsch goes on to explain that clients often use the family office to benefit their businesses by providing growth capital at attractive entry prices or by using the family office’s assets to create lending capacity for existing or new business activities.
Thus, family offices have highly individual preferences when it comes to their investments, but general trends can be identified. Family offices need to address these trends and drive the changes implicit in them at the organisational and investment levels in order to continue to be successful in the market. Therefore, the current focus is on investing in ESG, or sustainability criteria, in areas such as technology or the healthcare sector, or on direct investment in other companies.
