Family office allocations to private equity are predicted to rise 73 per cent between 2017 to 2019, from USD51 million to USD88 million per family office, according to a a new report from Campden Wealth – ‘Private Equity Investing and Co-Investment Activity by Family Offices’.
The report, developed and published with support from the global investment firm KKR, provides a deep-dive analysis into why key trends within the private equity and co-investing arena have occurred. Over 75 family offices globally completed a survey on the topic. The report also features case-studies with senior family office executives who discuss their experiences with private equity and co-investing.
According to the report, which also features case-studies with senior family office executives who discuss their experiences with private equity and co-investing, an incredible 91 per cent of family office private equity investments either met (53 per cent) or out-performed (38 per cent) their expectations in the last 12 months. Their average private equity return stood at 14 per cent in 2017, and respondents predicted that their average return for 2018 will again be 14 per cent, but will rise to 18 per cent in 2019.
Healthcare is the most popular sector for family offices’ private equity fund investment, according to 55 per cent of respondents.
More than half (53 per cent) of all private equity fund investments are put towards growth capital deals, while 28 per cent go towards leveraged buyouts and 19 per cent venture capital.
Some 67 per cent of respondents believe that family offices’ demand for co-investing opportunities will increase over the coming 12 months. Importantly, zero argued that the demand would decline.
Over half (57 per cent) of the family offices stated that ‘lower middle markets’ offer the best opportunities for co-investment deals, followed by middle markets (26 per cent).
Dr Rebecca Gooch, Director of Research at Campden Wealth, says: “Across the globe, family offices’ allocations to private equity are predicted to rise over the coming year. The family offices we studied for this report predicted a significant 73 per cent climb in investment between 2017 and 2019. That translates into an average allocation of USD51 million per family office in 2017 to a projected USD88 million in 2019. This will certainly solidify private equity’s place as the second most significant asset class to family offices, trailing only behind equities.”
“It is also interesting to report that a significant nine out of ten of family offices’ private equity investment returns either met or exceeded expectations this last year. With family offices projecting that their average returns will increase from 14 per cent in 2018 to 18 per cent in 2019, this supports the position that many have been taking in terms of embracing a somewhat higher risk, more illiquid investment strategy within their portfolios.”
“Demand for co-investing is increasing, with two-thirds of family offices expecting to see a rise in calls for co-investing opportunities over 2019. Family offices would be wise, however, to choose their co-investment partners carefully. The report uncovered that experience and most importantly a track record of value creation are key criteria. Financial alignment is also key.”
Jim Burns, head of EMEA client and partner group, and head of individual investor business at KKR, says: “Large family offices are often well-suited to invest in private equity, given their long-term investment horizon and flexible investment mandates. Additionally, many family offices have a different liquidity profile than other investor types – a characteristic that lends itself nicely to investing in private equity.”
“Beyond regular-way fund investing, family offices are increasingly looking for creative ways to gain private equity exposure, including co-investing and direct investing into companies. While this can prove cost-effective in certain situations and gives investors the comfort of diligencing assets on a deal-by-deal basis, this approach requires an appropriate amount of committed capital, as well as dedicated investment resources, to deliver the returns expected by the family over time.”