The majority of family offices are investing in private equity but are overlooking opportunities in smaller deals (under USD100 million in Enterprise Value) and in markets outside the United States, according to a new survey from Schroder Adveq.
Conducted among family office and private wealth professionals at the Opal Family Office and Private Wealth Conference in Newport, Rhode Island, the survey found that approximately 70 per cent of respondents are invested in private equity, but only one third of those investors (circa 35 per cent) had private equity investments allocated to funds focused on small buyouts.
That said, family offices are beginning to recognise the most attractive characteristics within smaller-sized deals, including greater buy-and-build opportunities and lower purchase prices as the top two reasons. The potential for a larger universe of buyers at the time of exit as well as the opportunity to better diversify investors’ portfolio of managers are additionally cited as top reasons smaller deals are appealing.
“Large buyouts clearly command the most attention, but this leads investors to think this is the preferred or even safest place to find attractive opportunities,” says Ethan Vogelhut, Head of Buyout Investments, Americas. “However, in reality, smaller deals make up the vast majority of the opportunity set for investors, but only 25 per cent of capital goes into these types of deals, offering savvy investors access to an often-untapped and less efficient segment of the market.”
Family offices are also failing to recognise private equity opportunities in emerging markets and in Europe, with only 5 per cent and 6 per cent, respectively, citing these regions as having the most opportunity over the next year. Instead respondents showed a large home-bias towards investing in the US with 75 per cent citing the US as having the most opportunity.
In emerging markets, respondents were most concerned about political uncertainty (32 per cent). Fifteen per cent were most concerned about the lack of private equity managers with experience or expertise in emerging markets, while 14 per cent worry that there is not enough information available to fully vet potential investments in the region.
“The survey found that investors’ are not currently taking advantage of opportunities in PE within emerging markets and Europe. This was surprising to us as we see as strong opportunities in both of these regions,” says Steven Yang, Head of Global VC for Schroder Adveq.
“Investments in China and India on the emerging market side are offering competitive returns. Opportunities in the small to mid-segment of the Asian private equity market, in sectors like healthcare for example have demonstrated strong growth potential. In Europe, we are also finding opportunities in small to mid-buyouts and turnarounds.”
