Family Offices and wealth managers are turning to private equity to boost their returns in the low interest rate environment.
New figures from private equity fund marketplace Palico show that family offices accounted for 8% of the $4 trillion in private equity assets under management globally in August – double the sector’s share five years ago.
Family offices have become the fifth biggest investor in private equity, following public pension funds at 26%, sovereign wealth funds at 16%, private pension funds at 12% and insurance companies at 10%.
Five years ago, family offices ranked joint seventh alongside government agencies, with each accounting for 4% of assets globally invested in private equity.
Palico said that in the past five years, family offices and high net-worth individuals with at least $10 million of investable assets had grown their average allocation to private equity by more than half – from 19% to 29% of their assets.
That means these two groups have become the second fastest growing source of capital for private equity fund managers in absolute terms, behind sovereign wealth funds.
Palico cited low interest rates as a factor, with family offices and high net-worth individuals targeting double-digit returns from private equity. Co-investment is part of the approach.
John Denes, a CEO at the placement agent firm REO Capital, said: “Family offices have got some very sophisticated teams, are hiring some of the best guys in the industry, and their direct or co-investment arms are becoming a lot more active.”
It is said the commitments from Family Offices now match those of some of the larger institutional investors, as these family offices turn their back on their traditional investment strategies.
She said: “There are fewer family offices relying on funds of funds or gatekeepers such as wealth management platforms and private banks.”
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