Connectivity on Multiple Fronts - Insights From the 2024 Apex Global Family Office Symposium
July 24, 2024
We recently hosted ~170 family office investors at our annual Apex Global Family Office Symposium in New York City. Attendees heard from an impressive lineup of speakers who discussed timely topics related to investing, the economy, business succession, and family office management and planning.
Sara Naison-Tarajano, global head of Private Wealth Management Capital Markets and Goldman Sachs Apex, kicked off the day with a discussion with David Solomon, chairman and CEO of the firm, on the evolution of family offices and why they are such a vital part of our business at Goldman Sachs.
“As family offices think about how to deploy and compound their capital successfully, they are looking for more of a connection to what’s going on in the broader economy,” Solomon says. “We’re working hard to be that connection.”
Multiple sessions touched on the many ways family offices can deploy capital, including opportunities in alternatives, private equity, and scaling businesses, a topic that Michael Rubin, CEO and founder of Fanatics, discussed with Solomon in a fireside chat.
Here are a few key insights from the day:
Take a 360° approach to scale
While some businesses expand by taking on more differentiated products and services, two seasoned entrepreneurs discussed the benefits of growing a company by diving deeper into its niche.
In a conversation with David Solomon, Michael Rubin, founder and CEO of Fanatics, explained how he has been laser-focused on turning Fanatics into the go-to digital sports platform. Rubin started out selling licensed merchandise, then expanded to collectibles and sports betting. He also implemented a vertically integrated logistics network, which allowed him to then manufacture 50% of the products and create a more agile supply chain. This focus helped him transform a $250 million dollar company with “no shape or form” into a $6.5 billion global enterprise with 110 million customers.
This approach solidified Fanatics’ brand recognition, which ultimately reverberated into its bottom line.
“When we recently took over a sports betting platform, as soon as we migrated it to Fanatics, we were five times more effective from a marketing perspective on the same dollars spent because people know the Fanatics brand,” he says.
In a session on entrepreneurial success, Meena Flynn, co-head of global Private Wealth Management at Goldman Sachs, spoke with John Paul DeJoria about his strategies for building a thriving family business. DeJoria started John Paul Mitchell Systems by selling haircare products, before widening its reach to include salons and beauty schools. He also shared his successes scaling and selling Patrón and then returning to the spirits business with Bandero Tequila.
No matter the industry, he encourages entrepreneurs to fully immerse themselves in the company’s workflows and processes to make better business decisions. This deep dive can be especially valuable for business succession. Before becoming CEO of John Paul Mitchell Systems, DeJoria’s daughter, Michaeline, insisted on working in every department. When she eventually took over, “her depth of knowledge allowed her to come up with many innovative ideas that pushed the company to grow every single year,” says DeJoria.
There’s no clear off-ramp for geopolitical issues
The current economic landscape still faces several headwinds: higher rates, stickier-than-expected inflation, and rising geopolitical issues. While central banks aim to steer economies toward a soft landing, Jared Cohen, co-head of the Goldman Sachs Global Institute, has a different outlook for how international affairs and politics may fare.
“You have escalating tensions between the US and China. Wars in Europe and in the Middle East. And none of these have a clear off-ramp,” Cohen says. “There's no geopolitical equivalent of the Fed’s monetary policy that could extricate us from any of the current global crises.”
Cohen says there is no country with the capacity and leverage to stop the Russia/Ukraine war on its own. Despite the US delivering aid to Ukraine, it has not been enough for Kyiv to win the war, and the domestic political tension around that aid has demonstrated it is not a guarantee. Meanwhile, European countries are reconciling with how much they’ve underinvested in their defense industries. And China, which has few allies, is continuing to support Russia.
As such, Cohen says China and the US will continue to deal with their competitive co-existence, in that they are each other’s third largest trading partners but also each other’s most formidable rivals, with no international entity that can mediate their dispute. To gain an upper hand, both China and the US will need to garner support from other countries. Cohen points out those countries will act in ways most economically advantageous to them, so they may support the US in certain situations, while backing China in others. These are the 21st century’s geopolitical swing states, and they will shape the future of great-power competition.
Remain overweight to US equities and stay invested
In its 2024 Outlook report, America Powers On, the Wealth Management Investment Strategy Group (ISG) reiterated its long-held investment themes of US Preeminence and Stay Invested. These themes are depicted on the cover of the report, which shows a car traveling at high speed in a vast landscape, symbolizing the expansive and diverse US economy with corporate earnings that continue to grow at a strong pace.
So far this year, US growth and equity returns are tracking around the “good case” scenario ISG laid out in the Outlook, while global growth is still tracking around trend levels.
ISG raised its US GDP growth forecast and is now expecting 2.5% growth in 2024. S&P 500 earnings continued to beat consensus expectations in Q1, and ISG continues to forecast 8%-10% earnings growth for the S&P 500 in 2024.
“It’s remarkable how resilient the US economy is,” says Sharmin Mossavar-Rahmani, chief investment officer of Wealth Management and head of ISG.
Resilience is one of the several factors that underpin ISG’s view of US Preeminence. Other factors include: the largest economy in the world, large and deep financial markets, favorable demographics, and an immense wealth of resources. These factors are set to persist into the foreseeable future, and endure even in the face of social, cultural, and political fissures.
“The factors driving US Preeminence are not things that ebb and flow and disappear,” says Mossavar-Rahmani. “All of these aspects translate into better long-term earnings-per-share growth for portfolios. So, from a strategic perspective, you can see why we still like US Preeminence and staying overweight US assets.”
ISG continues to recommend clients remain invested in US equities and overweight US equities relative to other global equity markets.
Explore investment opportunities in evolving alternatives markets
Alternative investments have long been – and continue to be – a staple of many family office portfolios.
In a session on opportunities in venture capital and growth equity moderated by Kristin Olson, global head of the Alternative Capital Markets Group at Goldman Sachs, panelists remarked on the improved health and dynamics of the markets now that valuations have seen a correction.
“We are in a really unique window where we’re seeing super high-quality companies reset valuations at eight to 12 times forward revenue on growth assets,” says Darren Cohen, co-head and chief investment officer of Goldman Sachs Growth Equity Investing. “It’s probably the healthiest space I’ve seen in the last seven years.”
Speakers also discussed the top themes they are watching, including AI, robotics, enterprise software, and private market infrastructure.
Real estate is another investment area of interest for family offices. Recently, the sector has been confronting higher interest rates, refinancing challenges, and an oversupply of office space and multifamily homes.
But Scott Rechler, CEO and chairman of RXR, thinks some of these areas of “indigestion” are exactly where investors should be looking, while still being prudent.
“You want to be like a stock picker,” he explains. “Make sure you have the right asset, the right market, the right sector, because there are still going to be a few bumps over the next few years.”
Nadeem Meghji, global co-head of Blackstone Real Estate, discussed how real estate has recently shifted from being monolithic, where each sector falls or rises at the same time, to a more nuanced asset class where sectors move at different speeds.
His firm has leaned into assets that are impacted by larger technology and demographic trends, including warehouses that benefitted from the ecommerce boom, data centers that are important for artificial intelligence and the digitization of the economy, and rental housing, driven by a supply shortage of 4-5 million housing units in the US.
In addition to understanding the importance of technology on physical spaces, Meghji underscored the value of fundamentals.
“To produce returns over a long time period, real estate is about supply and demand,” he says. “Our focus has been on markets where either there's a structural undersupply or where you have outsized demand. And if you can find both, that's really sort of the nirvana.”
Multigenerational families evolve their plans alongside family members
In a discussion around building and sustaining multigenerational family offices, panelists noted the need to fix inefficient long-term trust structures that are often established in the first generation. The assets in these single-generation trusts eventually need to move to more dynastic frameworks as families grow larger.
Assets in a traditional estate plan are often divided among the next generation when the first generation passes, and over time, they become diluted, spread too thin, or consumed. Family offices will want to explore how they can keep a portion of assets combined, to preserve strength, longevity, and opportunity.
As families grow larger, they not only require new trust and estate planning tactics but a tremendous amount of family management, connectivity, and alignment.
No matter the generation, every family member wants to feel like they have some level of control, some input – a voice – in the planning and investment process. And that dynamic becomes more complex and difficult to manage as families expand.
“So many times I’ve heard families say that the single most valuable thing they do is gather everyone together in person, at an offsite, at least once a year,” says Eric Naison-Phillips, managing principal at the Winged Keel Group.
That intimate connectivity is vital for navigating the needs and wants of multiple generations.
“Having a sustainable family system requires an elegant combination of efficiency, flexibility, and simplicity,” says Patrick McCurry, partner at McDermott Will & Emery LLP.
Find joy (or at least, ease) in missing out
When it comes to exploring investments and opportunities to deploy capital, there will inevitably be lulls and pauses, panelists noted in a session on family office leadership led by Anushka Gupta, head of Goldman Sachs Apex in the Americas.
During those times, you may hear about other offices executing deals or taking new opportunities. You might feel some fear of missing out, coupled with the urge to maintain momentum.
Family office leaders discussed being at ease with that feeling. You don’t need to take every deal. Fill those moments by taking time to assess, research, and solidify the long-term strategy of the family office.
These moments can also be an opportunity to explore and learn new industries or help the office diversify its exposure. There can be different operations focused on specialized areas within investing, but they can still adhere to the same objectives of the main operation.
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