Family offices push to increase PE exposure

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A third of family offices and foundations intend to increase their private equity allocation in the next 12 months, a survey from montana capital partners (mcp) and Private Equity International has found.

The second Annual Family Office and Foundation Private Equity Survey questioned 64 family offices and foundations about their strategies and opinions.

Almost half of those surveyed said they had increased their allocation to private equity in the last 12 months, with just 13 percent saying they had decreased their allocation.

The survey revealed the importance of private equity for family office investors, many of whom not only have high allocations but are also intending to increase this allocation. Just 11 percent of family offices responded that they will decrease their allocation during the next year.

“Family offices and foundations play an ever more active role in the private equity landscape,” said Christian Diller, partner and co-founder of mcp. “As banks and insurers have stepped away from the asset class – primarily for regulatory reasons – family offices have proven to be a stable investor group and have evolved into major providers of new capital to private equity funds. In addition, their often entrepreneurial DNA means they have a natural affinity with the asset class.”

Seventy percent of recipients said direct investment “is a part of the DNA of a family office”. Only a fifth said they avoid co-investment, while a fifth said it is an established part of their strategy, 44 percent said co-investment is something they have done opportunistically, and 15 percent said it was something they intend to start doing in the next year.

Funds of funds play a smaller role in family offices’ portfolios, with 82 percent of respondents saying they either intend to get out of their existing funds of funds or characterize their relationship with the strategy as “marginal”.

However, 79 percent of those surveyed are active in the secondary market in some capacity, with 46 percent already invested in secondary funds.

Family offices are also open to new relationships with fund managers. In the last 12 months 44 percent of respondents increased their number of manager relationships, and around a third intend to continue to do so over the next year.

Mid-market private equity and distressed/turnaround investment are the most popular strategies among family offices and foundations, with large buyout the least favoured. Healthcare and consumer goods are the most popular sectors to back.

When it comes to investor outlook, there is growing concern about the favourability of capital markets for private equity investment, with 59 percent responding that investment risk is “beginning to be mispriced”. Just 19 percent say today’s capital markets offer favourable conditions for investing, and 23 percent believe the investment climate is the number one risk they face.