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Private equity proves pivotal in family portfolios

By Campden Wealth

Private equity accounts for 22% of the average family office portfolio worldwide and interest is rocketing among families, a new study by Campden Research says.

The new Private Equity Investing and Co-Investment Activity by Family Offices report, released today, said interest in the asset class in the family office community continued to grow, driven mainly by outsized returns and the availability of opportunities “that are deemed superior to those within public equities”.

The report, in partnership with global investment firm KKR, analyses why key trends within the private equity and co-investing arena have occurred. More than 75 family offices globally completed a survey on the topic and senior family office executives discussed their experiences with private equity and co-investing in case studies.

The second edition of the Private Equity Investing and Co-Investment Activity by Family Offices report found:

•             Allocations to private equity are predicted to rise 73% between 2017 to 2019, or $51 million to $88 million per family office over this period

•             Family offices reported 91% of their private equity investments either met (53%) or out-performed (38%) their expectations in the last 12 months. Their average private equity return stood at 14% in 2017, and respondents predicted that their average return for 2018 will again be 14%, but will rise to 18% in 2019

•             Healthcare is the most popular sector for family offices’ private equity fund investment, according to 55% of respondents

•             More than half (53%) of all private equity fund investments are put towards growth capital deals, while 28% go towards leveraged buyouts and 19% venture capital

•             (67%) of respondents believe that family offices’ demand for co-investing opportunities will increase over the coming 12 months. Zero argued that the demand would decline

•             More than half (57%) of the family offices stated that ‘lower middle markets’ offer the best opportunities for co-investment deals, followed by middle markets (26%)

Dr. Rebecca Gooch, director of research at Campden Wealth, said family offices’ allocations to private equity were predicted to rise over the coming year.

“The family offices we studied for this report predicted a significant 73% climb in investment between 2017 and 2019,” Gooch said.

“That translates into an average allocation of $51 million per family office in 2017 to a projected $88 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.

“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, said private equity was especially well-suited for large family off ices, given their long-term investment horizon and flexible investment mandates.

“While other investor types also can claim to have a long-term view, they usually have spending/distribution requirements that serve to constrain the amount of investment flexibility they have versus family offices which often do not have similar liquidity needs,” Burns said.

To find out more information and order copies of the Private Equity Investing and Co-Investment Activity by Family Offices report, visit CampdenResearch.com.