Family Offices Adding Staff As Direct Private Equity Investments Increase

May 8 2017 | 9:03pm ET

More than half of family offices now have at least two employees dedicated to sourcing and vetting private equity investments, according to a new survey from Family Office Exchange, and four out of five have at least one. 

The data was published in the organization’s 2017 FOX Global Investment Survey, which polled 118 family offices on a number of issues including asset allocation, performance, passive versus active investing in long-only equity, investment trends, current economic outlook, and financial challenges.

Other highlights from the survey:

  • The overall sample reported a 7.2% portfolio return for 2016, which 64% said was a satisfactory result.  For comparison, the MSCI All Country World Index returned 8.2% and the S&P 500 returned 9.5% in 2016.
  • Natural resources, including commodities, had the best return of the reported asset classes at 15% average return. Domestic Equities were next at 13%, followed by real estate at 9% and Direct Private Equity Investments at 8% average returns.
  • 57% of families intend to increase their direct investments in operating businesses or real estate in 2017.  Demonstrating the accelerating interest in direct investing among family offices, of the 70 family offices that shared allocation data, the average allocation to direct investments in private equity was higher than through private equity funds (7% vs. 5%) at the end of 2016.
  • Of the family offices that are allocating more than 20% of their assets to Private Equity, the trend is even more dramatic in favor of direct investments vs. funds with average allocation to direct investments at 22% direct vs. 8% via funds. These private equity-focused family offices demonstrated higher overall performance than the survey as a whole at 10% vs. 7.2% average.
  • More families are moving beyond a “single pie chart” and segmenting their portfolios with different asset allocations to support different goals or risk profiles, with 58% reporting doing so.

“Since the financial crisis, we have seen families looking for alternatives to traditional equity and bond investing and reassessing their hedge fund allocation,” said Sara Hamilton, founder and CEO of FOX, in a statement. “Direct investing gives family offices the opportunity to invest - as a lead or co-investor - in companies they know well, and where they, on average, expect double digit returns.” 

Headquartered in Chicago, Family Office Exchange is a global member network for enterprise families and their advisors who are pursuing best practices for managing their family enterprise and growing their family wealth. The community includes over 8,000 family leaders and sophisticated advisors from 500 organizations in 20 countries.

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