Family Offices Prefer AI Stocks Over Startup Investments
Investment firms managing ultra-high-net-worth portfolios, including those of Jeff Bezos and Eric Schmidt, have recently drawn attention for significant funding rounds in artificial intelligence startups. However, a deeper analysis reveals that family offices predominantly allocate capital to AI through public equities rather than direct startup investments. Late last month, Bezos Expeditions co-led a $405 million funding round for robotics startup Field AI, joined by Laurene Powell Jobs’ Emerson Collective. Over the past six months, Hillspire, Eric Schmidt’s family office, has backed at least six AI startups, according to private wealth data from Fintrx.Goldman Sachs Survey Highlights Public Market Preference
A recent Goldman Sachs survey of 245 family offices worldwide found that 52% have AI exposure through public equities or ETFs. In contrast, only 25% reported direct investments in AI startups. This trend underscores a cautious approach favoring publicly traded companies amid valuation uncertainties in private markets.“The top nine out of 10 stocks in the S&P are AI-driven stories, and they make up 40% of the S&P,” said Meena Flynn, co-head of global private wealth management at Goldman Sachs. Flynn explained that family offices tend to trust public market valuations more due to the significant premium often seen in private market deals. Over the past five years, private valuations have frequently outpaced realistic growth expectations, prompting investors to favor the transparency and liquidity of public equities.Focus on AI Productivity and Secondary Beneficiaries
Beyond direct AI startups, family offices are increasingly investing in companies that utilize AI to enhance productivity and efficiency, with 38% reporting such exposure. Additionally, 32% invest in sectors benefiting indirectly from AI advancements, such as energy providers.- 38% invest in AI-driven productivity and efficiency companies
- 32% invest in secondary beneficiaries like energy and materials firms
- 27% plan to overweight energy and materials sectors in the next year
Demographics and Rapid AI Adoption
Family office principals tend to be older, with Deloitte estimating an average age of 68. Despite this, they have swiftly embraced AI due to its pervasive presence in everyday life, unlike earlier technologies such as blockchain.“AI is already a part of people’s life,” noted Jean Altier, global head of managed strategies at Goldman Sachs, citing innovations like Google’s AI-enhanced search as examples. This rapid native exposure to AI has accelerated investment interest, particularly in accessible instruments like public equities.Private Market Constraints and IPO Backlog
While public equities dominate family office allocations, accessing private market opportunities remains critical for broader AI exposure. However, a significant backlog of unicorns waiting for IPOs slows this pathway, with around 800 private AI startups currently valued as unicorns.“Assuming historical IPO exit rates, it would take 12 years to clear the current backlog, compared to four years before the pandemic,” Flynn explained.FinOracleAI — Market View
Family offices’ preference for public equities in AI investments reflects a pragmatic approach balancing growth potential with valuation discipline. The dominance of AI-driven companies in major indexes supports this strategy, providing diversified exposure with liquidity advantages.- Opportunities: Broad market exposure to AI leaders via public equities; indirect investments in AI beneficiaries such as energy and productivity firms; lower valuation risk compared to private markets.
- Risks: Potential missed upside from early-stage AI startups; prolonged IPO backlog limiting private market liquidity; risk of market volatility impacting AI stock valuations.
Impact: Family offices’ strategic tilt towards AI public equities over startups signals cautious optimism, favoring transparent valuations and market liquidity amid a rapidly evolving AI investment landscape.
