Family offices miss opportunities by skipping small funds: survey

  • Why this is important: Family offices are missing opportunities in small buyouts, non-U.S. funds

Family offices are increasingly attracted to PE but are missing out on strong returns in small buyouts and non-U.S. markets.

That was the upshot of a recent survey conducted for Schroder Adveq at the Opal Family Office & Private Wealth Conference in Newport, Rhode Island, in mid-July.

The survey covered 112 single-family offices, multifamily offices and wealthy individuals.

Almost 70 percent of the respondents had private equity investments in their portfolio but only 35 percent invested in small buyout funds, the survey found.

What made small buyout funds appealing? Greater buy-and-build opportunities (45 percent), lower purchase prices (42 percent), diversity/range of managers (27 percent) and a larger universe of buyers at the time of exit (26 percent), the survey said.

“Smaller deals make up the vast majority of the opportunity set for investors and offer savvy investors access to an often-untapped and less efficient segment of the market,” said Steven Yang, head of global VC for Schroder Adveq. “By overlooking the small buyouts, family offices are missing the majority of the investable universe.”

The small-buyout universe includes more than 4,000 funds globally. Only half are U.S. based/focused, Yang said. Interestingly, two-thirds of respondents felt the U.S. offered the most PE opportunities. More than 12 percent of respondents thought Asia offered the most PE opportunities and 6.4 percent named Europe.

Political uncertainties, lack of PE managers with experience or expertise in emerging markets, and differences in company governance standards were key concerns about investing in emerging markets, the survey said.

But “such a home-bias in private equity investments was quite the eye-opener,” Yang said. “Family offices are failing to recognize private equity opportunities elsewhere.”

For instance, considering that 28 percent of the respondents found the most attractive opportunities in venture capital, “the significant home-bias will keep them from potential unicorn deals in Asia and elsewhere,” Yang said.

“While Silicon Valley continues to be the main hub for innovation, Asia and Europe drive 50 percent of the top 10 innovation hubs and 50 percent of global unicorns,” Yang said.

Indeed, Asia raised $21.3 billion across 1,300 deals in the second quarter of 2018, according to a PwC/CB Insights MoneyTree report. The U.S. raised $23.7 billion across 1,506 deals in the period.

Action Item: Read the survey news release here