Investors

Private equity has ‘structural shortcomings’ for families

Multiple fee layers, high minimum investment tickets and a painful J-curve have deterred many wealthy families from investing in the asset class, says Richard Clarke-Jervoise, a partner at Stonehage Fleming.

-

Multi-family office Stonehage Fleming has raised its first annual private equity programme, the Stonehage Fleming Global Private Capital Fund 2016. Each annual fund will invest in between five and seven managers, providing exposure to between 50 and 100 underlying portfolio portfolio companies.

“Many families have experienced a mismatch between their expectations for private equity returns and reality,” Richard Clarke-Jervoise, partner at Stonehage Fleming, told Private Equity International, pointing to a hypothetical example of a family that may have committed to 10-year funds of funds: “Including the performance drag from having to hold cash to cover unfunded commitments, they maybe end up with something like 7 percent annual returns. There is also a considerable administrative burden for a family office without a dedicated private equity investment professional.”

Stonehage Fleming’s private capital programme has been designed to overcome what Clarke-Jervoise, who sits on the BVCA’s LP committee, describes as some of the “structural shortcomings” associated with the asset class. “These include high minimum investment amounts, significant additional layers of fees, lack of transparency and the lengthy time periods required to fully deploy capital.”

“These factors can deter families and wealthy private investors who have little or no existing experience of private capital investment,” he said.

Clients of the firm, who already pay for asset management services, can access the programme without paying additional fees. “Effectively there isn’t that additional layer of management fees,” said Clarke-Jervoise.

In order to mitigate issues around slow deployment, two-thirds of the programme are deployed on day one into certain evergreen funds of funds, said Clarke-Jervoise.

Stonehage Fleming advises more than 250 wealthy families and has more than $12 billion under management. In the last 18 months the firm has raised $166 million from clients to invest in private equity funds through its formalised programme and a number of separately managed accounts.