Study Finds Private Equity Continues to
Attract New Investments from Family Offices
Key points:
- On average, private equity makes up
21% of a family office portfolio – the highest proportion of any
asset class. Also, eight in 10 family offices intend to maintain or
increase their allocations to this asset class going
forward;
- Allocations to private equity funds
represent the highest proportion (34%) of the family office private
equity portfolio, with the key pull factors being diversification
and consistent deal flow;
- Family office executives point to
skills and resource gaps as the key challenges faced by those who
choose to invest directly.
Campden Wealth, with support from KKR, today released a new
study looking at the challenges and opportunities related to
investing in private equity. The research, titled “Private Equity
and Co-Investing for Family Offices”, builds on quantitative data
collected for Campden Wealth’s Global Family Office Report 2016
(GFO). It provides insight based on interviews with family office
executives, which explain and contextualise some of the key trends,
including factors which motivate family offices to invest in
private equity, the problematic gap between expected and realised
returns; as well as advantages and disadvantages of passive and
direct approaches to private equity investing.
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On average, private equity makes up 21% of a family office
portfolio – the highest proportion of any asset class. Also, eight
in 10 family offices intend to maintain or increase their
allocations to this asset class going forward.
Based on data collected for the GFO 2016, allocations to private
equity represented over a fifth (21%) of the average family office
portfolio. A 2% increase from 2015 was reported among multi-year
participants in the study (family offices who participated in the
GFO in 2015 and 2016). Family office executives who participated in
qualitative interviews earlier this year, pointed to
diversification benefits and the potential of higher returns as the
key factors that attract them to private equity.
Private equity is expected to further strengthen its position
within the average family office portfolio as eight in 10 GFO 2016
participants indicated they intend to either maintain or increase
their allocations to this asset class. There is an indication
family offices will co-invest and invest more directly in the
future as 51% and 40% respectively stated they plan to increase
their activity within those areas.
Private Equity Allocations - % of the average family office
portfolioPrivate Equity includes: Direct venture
capital/private equity, private equity funds and co-investing
Average Direct venture
capital/private equity
11
Private equity funds 7 Co-investing 3
Commodities 2 Hedge funds: includes all strategies 8 Equities,
developed markets 18 Equities, developing markets 6 Fixed income,
developed markets 9 Fixed income, developing markets 3 Cash or
equivalent 8 Real estate direct investment 15 REITs 1 ETFs 2
Agriculture (forest, farmland, etc.) 2 Tangibles 1 Other
2
Future intentions for private equity
allocations - % of family offices
Stay the
Row % Decrease
same
Increase Direct venture capital/private equity
11 % 49 % 40 %
Private equity funds 23 % 48 % 29 %
Co-investing 6 % 43 % 51 %
Allocations to private equity funds represented the highest
proportion (34%) of the family office private equity portfolio in
2016, with the key pull factors being diversification and
consistent deal flow.
Increase from 31% to 41% was reported among multi-year
participants between 2015 and 2016.
Interviewed family office executives pointed to the benefits of
diversification and consistent deal flow as the key factors that
attract families to funds. They also highlighted the advantages of
access to a skilled pool of investment professionals, which can be
attractive to family offices with insufficient resources. One
family office executive from North America explained:
“One significant advantage that private equity funds have over
direct investing is the sector-specific skill-set and knowledge of
their managers, and the resources that they can put towards each
deal. My recommendation for those who want to invest in private
equity would be – work with fund managers first, they know how to
do it.”
Private Equity allocations, direct and
indirect - % of portfolio share, private equity holdings
only
2016
Active management role
26 %
Passive shareholder role
17 %
Early-stage / venture capital
8 %
ALL DIRECT 51 % PE funds 34
%
Co-investments, club and office-to-office
deals
14 %
Deals syndicated by investment bank
1 %
ALL INDIRECT 49 %
Family office executives point to skills and resource gaps as
the key challenges faced by those who choose to invest
directly.
Higher expected returns, absence of agent fees and greater sense
of control over operations and exit are the key factors that prompt
families to invest directly, say family office executives. In 2016
GFO participants expected an average return of 16% on their direct
deals, compared with 14% of all indirect investments.
However, interviewees also stressed the challenges frequently
faced by those who pursue this approach, including: restricted
access to high quality deals, limited team resources and knowledge
gaps.
They highlighted the importance of thorough due diligence and a
team’s ability to grow the businesses that they intend to invest in
as the key success factors. One family office executive from North
America explained:
“If you want to invest directly, be aware that for the potential
of generating higher returns, you will have to burn some shoe
leather and get some work done. It’s very time consuming and stress
levels are significantly higher.”
Notes for editors:
About the research:
Quantitative data analysed in this report was derived from a
survey conducted for the purpose of the Campden Wealth Global
Family Office Report 2016 (GFO 2016). A total of 242 respondents
participated in quantitative survey in 2016, representing family
offices with an average AUM of USD $759. Of these, 115 responded to
questions related to private equity specifically.
To provide clarification for the key private equity-related
trends that emerged from the in-depth analysis of the GFO 2016
dataset, six qualitative interviews were conducted with family
office executives in April 2017.
The sample of respondents came from Campden Wealth’s existing
community of family offices in North America, Europe, Asia-Pacific
and Emerging Markets.
About Campden Wealth
Campden Wealth is the leading independent provider of
information, education and networking (in print, in person, online
and via research) for generational family business owners and
family offices globally.
Campden Research supplies market insight on key sector issues
for its client community, and their advisors and suppliers. Through
in-depth studies and comprehensive methodologies, Campden Research
provides unique and proprietary data and analysis based on primary
sources.
Campden Wealth also publishes the leading international business
title CampdenFB, aimed at members of family-owned companies in at
least their second generation. Campden Wealth further enhanced its
international reach and community with the acquisition of the
Institute for Private Investors (IPI), the leading membership
network of private investors in the United States, founded in 1991
and with the establishment of Campden Family Connect PVT Ltd a
joint venture with the Patni Family in Mumbai, India in 2015.
About KKR
KKR is a leading global investment firm that manages investments
across multiple asset classes, including private equity, energy,
infrastructure, real estate, credit and hedge funds. KKR aims to
generate attractive investment returns by following a patient and
disciplined investment approach, employing world-class people, and
driving growth and value creation at the asset level. KKR invests
its own capital alongside its partners’ capital and brings
opportunities to others through its capital markets business.
References to KKR’s investments may include the activities of its
sponsored funds. For additional information about KKR & Co.
L.P. (NYSE:KKR), please visit KKR’s website at www.kkr.com and on
Twitter @KKR_Co.
The views expressed herein are the views of Campden Wealth
Limited and Jim Burns of KKR and not of KKR. This press release
does not necessarily reflect the views of KKR or any investment
professional at KKR. This press release is not intended to, and
does not relate specifically to, any investment strategies or
products that KKR offers. This information is not research and
should not be treated as research provided by KKR. Nothing
contained herein constitutes investment, legal, tax or other advice
nor is it to be relied on in making and investment decision or
other decision. KKR disclaims liability for anyone’s use of or
reliance upon the information contained herein. This information
should not be viewed as a current or past recommendation or a
solicitation of an offer to buy or sell any securities or to adopt
any investment strategy.
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Media:Campden Wealth:Zuzanna Sojka, +44 (0)
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