Execution challenges stifle family office co-investments

Family offices are doing less co-investing and active management of their private equity investments, increasingly delegating to funds amid execution challenges, new research suggests.

The newly-released Global Family Office Report 2017 (GFOR) said co-investments made up only 9.4% of the average private equity portfolio among 101 multi-year participants.

This was despite family offices' claims in past years that they intended to increase their involvement in co-investing. In 2016, 15% was dedicated to co-investment deals.

Active management dropped 4% to make up 22% of the average multi-year private equity allocation, while the proportion of assets put into private equity funds jumped almost 8% to 43%.

The difficulties family offices faced when trying to co-invest included identifying attractive deals (57.4%), due diligence (46.8%), and aligning the values and objectives of potential investment partners (41.5%).

Staff skills shortages were another reason given for the drop.

“Some of those who are co-investing successfully told us that they source their deals through personal networks or choose to co-invest alongside funds for their due diligence capabilities. Families who wish to co-invest more may consider following similar approaches,” said Dr Rebecca Gooch, director of research at Campden Wealth.

The fourth annual report by Campden Wealth, in partnership with UBS, noted co-investments family offices in Emerging Markets were more likely than those in Asia-Pacific to allocate towards co-investments.

“While it may be slightly easier to find a co-investing opportunity in Asia-Pacific, family offices in this region are more likely to face challenges relating to due diligence, a lack of relevant skills, and counter-party risks. In turn, family offices in North America find it relatively more difficult to maintain a steady co-investment deal flow,” the report said.

The study reported participating family offices were involved in 6.7 co-investment deals over the year on average, with over half (52.5%) of those being so-called fund-to-family, rather than family-to-family (47.5%).

A significant majority (96.9%) of those who co-invest found their existing deals through their own personal networks of contacts.

When asked what motivated them to co-invest, most of the participating family offices listed the opportunity to invest directly (69.7%), access to qualified prospects through trusted networks, (67.7%) and a chance to collaborate with like-minded investors (64.6%).

Global Family Office Report 2017 Fast Facts

• Survey data was collected from 262 family offices from around the world.
• Researchers also conducted 25 in-depth interviews with family office principals, executives and advisers.
• The average family office surveyed has an average of $921 million assets under management.
• There are 5,300 family offices in existence globally—including single family offices and private multi-family offices.