Insights from the 2023 Apex Family Office Symposium
Uncovering Opportunities in an Uncertain Landscape
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Despite a swift and significant shift in financial conditions complicating an already challenging macro environment, family offices are focused on identifying opportunities to create more value for future generations and maximize their impact. Representatives from more than 150 family offices globally joined the Apex Family Office Symposium to discuss what is top of mind and hear insights from industry experts and Goldman Sachs leaders.
Understand the unique strength of U.S. equities
Family offices cited recession, inflation and geopolitical risks as the top three issues they’re watching now and into the near future, which is reflected in our recent report, Eyes on the Horizon. Several Goldman Sachs leaders shared their thoughts on these issues as they discussed the macroeconomic outlook.
David Solomon discussed the potential of a recession, pointing out the difficulty of tightening economic conditions as swiftly as we have following a relatively long period of quantitative easing.
“We were set up with an enormous amount of fiscal stimulus after very, very easy money. And I think one of the reasons tightening is creating a lag effect is because we’re still burning off that stimulus,” he said. “Ultimately we will rebalance.”
Despite uncertainties in the macroeconomic landscape, Sharmin Mossavar-Rahmani emphasized that the Investment Strategy Group’s (ISG) long-held investment theme of U.S. preeminence remains intact. “From a long term-perspective, we don't believe there is a reason to underweight U.S. equities,” Sharmin said.
This is because U.S. earnings drive U.S. equity performance, and with the exception of recessions, U.S. earnings are upward trending. Sharmin explained this long-term upward trend is unique to the U.S. and does not apply to other regions, meaning the hurdle to underweight U.S. equities is high.
“You have to have a lot of conviction that you know something the market doesn't know or has not already priced in,” she said.
On a short-term basis, and despite the strong performance of the S&P 500 year-to-date, Sharmin continues to recommend clients stay invested in U.S. equities. At the start of the year, ISG laid out an aboveconsensus base case forecast for the S&P 500 reaching 4,200 to 4,300 by year-end. At the time, their expectation for positive S&P 500 returns in 2023 may have seemed counterintuitive amid concerns that efforts to control inflation would also tip the U.S. economy into recession.
However, if recession does not occur, ISG expects midsingle-digit nominal GDP growth to lift earnings by 4-6% this year, providing support for higher equity prices. ISG places 25% odds on the S&P 500 reaching 4,800 by year-end.
In a good case scenario where the U.S. economy avoids a recession and inflation continues to moderate, “we actually think the market has a lot of upside,” Sharmin said.
Find your area of expertise and dig in
In a session on family office leadership, the heads of several large family offices discussed how they use their organization’s natural advantages and resources to discover opportunities. Does your family office have a true advantage in a particular sector, geography, customer segment and/or existing operating business? What asset classes do you know inside and out versus where does it makes sense to leverage a partner and your network?
For Jay Brown, that expertise was knowing how to help artists and celebrities build businesses and brands. Many of the music artists he worked with at Marcy Venture Partners weren’t familiar with investing or strategic brandbuilding. He saw an opportunity to not only educate them but connect them with investors and other brands who could help them grow. Josh Lobel’s office takes a similarly focused approach.
“We’re willing to concentrate. We're trying to lever into situations where we have a real advantage,” Josh said. “You want to construct an approach to investing that leverages and empowers that advantage without resulting in the very concentration you’re trying to get away from.”
It can be helpful to combine this concentrated approach with a willingness to outsource when the investment landscape inevitably changes. Wiktor Sliwinski used credit as an example.
“For years, credit wasn’t an interesting asset class because rates were so low,” he said. “But now that it’s attractive again, our six-person team didn’t have the capacity to start covering a large number of credit names. So we partnered with external fund managers who could build diversified credit portfolios.”
Explore the opportunities in a tighter lending environment
The topic of tight economic conditions came up in several panels, as speakers discussed recent events and what they mean for capital deployment opportunities. As longterm, multigenerational investors, many family offices continue to be overweight alternative investments but are not implementing significant asset allocation changes in the face of near-term market volatility. Our recent survey showed family offices on average are allocating 44% of their total portfolio across alternative asset classes.
Private credit is one alternative asset class that is having a moment in the spotlight. It started as a solution for small businesses who couldn’t access large banks but has seen an influx of capital in recent years as bank balance sheets have become more lending-constrained and private lenders have emerged to fill the gap.
While private credit also takes some market share from capital markets and syndicated deals, the recent consolidation in the banking sector, coupled with higher liquidity and funding requirements, is amplifying a 30-year secular trend of credit formation moving from banks to nonbank lenders.
“The U.S. does not need 4,000 banks,” Richard Ramsden said, noting the path of the U.S. economy is far less dependent on banks.
This shift means there are ample opportunities for investors to lend to moderately levered, profitable businesses on highly compelling terms with strong covenants. Currently, rates and spreads are elevated, and investors can also secure features that offer downside protection and potential equity upside for lenders.
“Today’s landscape offers an opportunity for investors to not only lock in attractive spreads but also to have ‘skin in the game’ alongside the future success of businesses they lend to,” Beat Cabiallavetta said.
Focus on AI build, rather than applications
Artificial intelligence (AI) is already changing how we live and work. Panelists noted the application of generative AI technologies across portfolio companies and also in our everyday lives, with Eric Sheridan remarking how he used ChatGPT as an idea generator to help him come up with interview questions for job candidates. In addition to these everyday assists, panelists described how AI could create opportunities and seismic shifts in numerous sectors, including education, health care and government affairs.
The panelists also addressed one of the most pressing questions about AI: How will it impact the labor market? Goldman Sachs Global Investment Research estimates roughly two-thirds of U.S. jobs are exposed to some degree of AI automatization, but worker displacement from automation has historically been offset by the creation of new jobs and occupations.*
Furthermore, the combination of significant cost savings, new job creation and higher productivity raises the possibility of a productivity boom that drives economic growth substantially.*
“These companies are going to be mission critical in terms of what gets built,” Eric said. “I also think it’s important to have a framework to think about how to invest in companies against this thematic backdrop.”
Seek out innovative life sciences companies with solid business plans
Disruptive life sciences technologies like CRISPR, antibody engineering and artificial organs are revolutionizing the way we approach medical care. Advances in machine learning and artificial intelligence could speed up the experimentation process and help life science technologies become more precise in disease prevention and cures, especially in areas like oncology and autoimmune diseases.
“We are in the Roaring ‘20s of biotech,” Dr. Sam Kulkarni said. He and panelist Dr. Diane Mathis described previously unthinkable breakthroughs in precision medicine, immunotherapy and synthetic biology that are now within reach.
As life science technologies continue to accelerate, and the timeframes for creating and approving new therapies shorten, significant opportunities to partner with or fund innovative companies can increase. Historically, large multinational pharmaceutical companies had more market share, but Sam forecasts a secular shift of value toward smaller biotech organizations focused on specific problems using tools like precision medicine, cell therapies and synthetic biology.
“If you look at all the drugs currently undergoing clinical trials, a large majority of approvals are going to come from biotech companies. And that's where the innovation is going to happen,” he said.
Many companies will be building off existing technologies, for example, re-formulating drugs to come with fewer side effects. While those advances are important and necessary, Dr. Diane Mathis is most excited by scientists who take a brand-new approach to a particular problem and tackle widespread diseases that have only seen pain and symptom alleviation treatments as opposed to cures and prevention.
“It’d be even better if their approach can be applied to not just one disease but extended to multiple diseases,” she said.
A successful life sciences company will have both good science and good business practices, with a forwardthinking plan in place. Take time to learn about a company’s desired upcoming milestones, funding plans and how it makes decisions around risk.
Discover more family office trends
Despite the main considerations that are top of mind for family offices — inflation, recession and geopolitical risks — family offices are keeping a steady hand on the wheel and focused on building multigenerational wealth. They’re taking time to hedge against risk as they seek out new areas of opportunity.
Learn more in our recent Family Office Investment Insights Report, Eyes on the Horizon, or speak with your Goldman Sachs representative.
Investment Strategy Group (“ISG”). The Investment Strategy Group, part of the Asset & Wealth Management business (“AWM”) of GS, focuses on asset allocation strategy formation and market analysis for GS Wealth Management. Any information that references ISG, including their model portfolios, represents the views of ISG, is not financial research and is not a product of GS Global Investment Research and may vary significantly from views expressed by individual portfolio management teams within AWM, or other groups at GS.
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