A $1 trillion market by 2030? $2 trillion by 2030? You can’t blame secondaries professionals for getting excited about how big the market might get. Yet there remain stubborn pockets of resistance.

According to a Montana Capital Partners survey, while 31 percent of institutional investors have sold stakes on the market, only 13 percent of family offices and foundations have done the same. Jefferies’ transaction data for the H1 2021 also reflects this. While endowments and foundations accounted for 5 percent of the $48 billion of assets sold in the first half of 2021 – not bad, given their weighting – family offices accounted for less than 1 percent.

Considering the largest 191 family offices have more than $225 billion in assets, according to UBS, and estimates suggests there could be more than 10,000 of them, this is hardly anything.

Why don’t family offices make up a larger chunk of secondary market activity? And is this likely to change? The reasons are institutional and individual. Family offices have longer return horizons. Unless they lack liquidity, they rarely feel the need to sell assets that are performing well, even in a high-price environment like today’s, where buyout stakes are selling on average for 97 percent of net asset value, according to Greenhill. Smaller family offices are often under-resourced and don’t always want more money to find holes in the ground for.

Even at a time when the outperformance of PE portfolios is bringing large numbers of LPs to market, family offices feel that force less strongly than others, says one Boston-headquartered investment consultant. Many are happy to wait for the vagaries of the market to bring their portfolio back within target range, even if it takes years.

Personal investment

They could use the market to try to offload poor-performing assets, but this approach is also laden with obstacles, notes Bernhard Engelien, managing director and head of Greenhill’s European Capital Advisory. The compensation of investment staff is linked to the performance of the PE portfolio.

Who would want to crystalise a steep loss, even if it meant freeing up capital to redeploy in something with better prospects? “There is pride at stake,” adds an Asia-based secondaries adviser: when you are investing your own money, it is more difficult to know when to cut your losses.

The growth of the GP-led market could be a positive development in the relationship between family offices and the secondaries market. The decision of whether to seek liquidity is taken out of LPs’ hands and put into the GPs’. If a family office was not going to proactively sell a portfolio before, it is even less likely to do so now that GPs are thinking about liquidity for them.

However, the steady stream of GP-led deals is forcing family offices to think about their holdings and whether they have the conviction to reinvest. This should come easily to some, according to David Newman, co-founder and chief commercial officer at wealth management software company Delio. Those who made their money in business often shun diversification in favour of investing directly in ideas or teams they find compelling, he told Private Equity International for its February private wealth Deep Dive.

This more active approach could help foster the idea of the secondaries market as a portfolio management tool, with a pay-off in the long run.