Family Offices Rank as Greatest Allocators to Private Equity – May 2015

by Matthew Rautionmaa

  • 13 May 2015
  • PE

Historically, family offices have been one of the most prominent investor types in private equity, with high proportions of their assets allocated to the asset class. According to the 2015 Preqin Global Private Equity and Venture Capital Report, the average allocation to private equity as a percentage of total assets for family offices was 27.2% as of January 2015, the largest for any investor type. Endowment plans were second with 12.8%, less than half of that of family offices.

The figures over time reveal a trend of family offices increasing their level of commitment to private equity. In 2010, family offices were the largest allocators to the asset class with an average allocation of 17.9%, and endowment plans followed at 12.3%. This shows that family offices are not only the leading investors in the asset class proportionately, but have also increased their average allocation significantly over the last five years by approximately nine percentage points, in comparison with an increase of just 0.5 percentage points by the second most prominent investor type.

An important factor to note when considering this discrepancy is the pressure felt by certain LP types from financial regulations. Family offices are not subject to the same investment restrictions as other investor types, such as banks and insurance companies. A recent trend has seen single- and multi-family offices joining together to make investments, providing them with expanded access to research and a greater level of expertise than they would otherwise have.

Preqin’s Investor Intelligence online service currently profiles 249 North America-based family offices that invest in private equity, representing a majority of over 52% of the 483 total family offices worldwide tracked by Preqin that are active investors in the asset class. The chart below outlines the preferred private equity strategies of these North America-based firms, with venture capital and buyout emerging as the most prominent choices.

Currently, almost half (47%) of North America-based family offices have indicated a preference for venture capital funds; 43% of the group favour buyout strategy vehicles. This is in line with the rest of the investor community across the globe, as shown in Preqin Investor Outlook: Alternative Assets, H1 2015. The collated results from our interviews of over 100 LPs revealed that small to mid-market buyout and venture capital fund types are perceived to present the best opportunities currently in market.

For North America-based family offices, growth funds and distressed private equity are the next most sought-after strategies. Indirect ways of accessing the asset class such as investing via fund of funds and secondaries appeal to 11% and 10% of family offices in North America respectively. These fund types offer diversity to a portfolio as well as the opportunity to commit to sectors and/or fund managers that the family office may not otherwise have access to.

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