More than half of single-family offices invest in PE – study

Of the majority of family offices that invest in the asset class, 40% engage in direct investing, according to a survey of 162 single-family offices by financial technology platform iCapital Network.

More than half of single-family offices invest in private equity, with 40 percent of them doing it directly and some with allocations of more than 50 percent of their portfolio.

Their exposure to private equity is mainly driven by the asset class’ potential to achieve superior investment performance, according to iCapital Network, a financial technology platform linking high net worth investment capital with private investment opportunities that surveyed 162 family offices.

“It’s significant how big some of the allocations really were,” iCapital managing partner Lawrence Calcano told Private Equity International. “We were surprised to see that in 8.4 percent of the cases, family offices had in excess of 50 percent allocation [to private equity].”

More than half of the single-family offices currently investing in private equity said they plan on increasing their allocation, and about a third that are not investing said they expect to start in the next two years.

One reason family offices are diving into the asset class is their familiarity with how private equity works: a lot of their wealth comes from running private family businesses, similar to how PE firms operate their portfolio companies, Calcano said. And given the importance of returns, the relative illiquidity of private equity compared with other assets is not an obstacle to invest: they understand the compensation for illiquidity, he added.

“One of the observations we made coming out of this research is that, right now, there are more than 130,000 private companies with revenue of over $25 million. In an environment where it’s hard to find growth, private equity provides opportunities to grow in your investment portfolio, particularly for those who can tolerate illiquidity,” Calcano said.

About 70 percent of the respondents said their PE fund investments outperformed others, and almost three-quarters of respondents said direct investments produced better returns than their traditional portfolio.

“Anecdotally, we know there’s significant amount of interest in not only finding great funds but also direct PE investments. Our sense is that’s probably going to grow based on what we’re hearing from people in terms of their interest in deploying capital,” Calcano said.

iCapital concluded its report by suggesting that wealth advisors should consider offering “access to high-quality private equity funds and direct investments in order to compete effectively.”

The report was based on data collected from 162 single-family offices with an average net worth of $918 million and investable assets of about $400 million. Over 50 percent of those surveyed were from the US, about one-fifth in Europe and Asia, and less than 10 percent in South America.

MSD Capital, a family office exclusively formed to manage capital of Michael Dell and his family, is one of three buyers in the $67 billion deal to buy EMC. It expects to raise PE allocation and said a third-party fund is a “possibility for the future,” as reported by PEI.