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Illiquid investments on the rise in European family offices

By Michael Finnigan

Investor confidence is driving more European family offices to buy into illiquid investments, according to an executive at one of Europe's largest multi family offices.

Mark Winkler, associate director at Fleming Family & Partners (FF&P), said there had been a trend towards liquid portfolios since the global financial crisis, as families wanted greater flexibility in case of a market crash, but this was changing.  

“Whilst liquidity has increased in the last seven years, we are seeing that families are increasingly looking to make illiquid investments, being tired of poor cash returns and the perception that listed equity markets are highly valued,” he said.

Family offices are also interested in direct exposure toward alternative assets, according to Winkler, who said this gives families an element of control and discretion.

Campden Wealth's head of research Andrew Porter agrees that family offices in Europe are turning towards illiquid portfolios and said real estate is a major area of investment.

“The trend towards illiquid portfolios stems from general optimism in the industry or a sense of where the markets and opportunities are,” he said, adding that mergers and acquisitions are an area of particular interest.

Porter suggested that family offices wanted to own businesses that are cash generating, offering more value than traditional dividends.

“It's not just that the business's valuation goes up and then they can sell, it's that these businesses are making money for the office to then do things with. So for illiquidity generally, it is an expression of the long view of the office itself, the level of control and the cash generated in the process,” he said.

Winkler said that FF&P had noticed an increasing number of families open to growth opportunities outside of their domestic markets.

Earlier this month, FF&P announced it was merging with another multi family office, Stonehage, to create Stonehage Fleming Family and Partners (SF&P).

The merger will pair FF&P's significantly larger investment assets, capability in fixed income, private equity and corporate advisory, with Stonehage's international client base and multi-disciplinary approach.