A recent survey conducted by Private Equity International and Montana Capital Partners found that family offices and foundations have increased their allocations to private equity in the past year and plan to do so again next year.
The study surveyed over sixty family offices and foundation investors and found that 45% of respondents have increased their allocations to private equity in the past year and 33% intend to increase allocations over the next year. Family offices have historically valued private equity and their exposure to the asset class continues to grow. Today 40% have more than 20% of their assets allocated to private equity, a 33% increase from last year.
Despite the increase, family offices are not simply throwing money at any fund manager. “Almost 62% say they are not likely to back a debut manager next year.” However, one respondent noted that, “’..first-time fund managers are hungrier to get the fund off the ground. We would not discount first- time fund managers but will have to feel very comfortable with their personal track records within their given space.’”
70% of family offices maintain that direct investing should be part of “their DNA.” These direct investments are paying off too. According to a recent article in Forbes “for the most part, they [family offices] are doing quite well as investors in small and middle-market companies. Risks and costs considered, the returns from these investments are proving to be superior to many of their other investments.”
Direct deals are likely to continue as target companies see family officers as attractive buyers. “Small and middle-market companies like the advantages associated with family offices; combine that with the investment success family offices have achieved through private equity and it’s clear that direct investing is going to intensify.”