Rich Families Go Solo on Deals, Moving Away From Private Equity
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Most family offices deploying staff to evaluate transactions
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Appetite for hedge funds is down, family office survey shows
Family offices, which manage the financial and personal affairs of the wealthy, are increasingly taking stakes in companies and committing staff to such efforts rather than investing in private-equity funds.Earlier today:
About 81 percent of offices have at least one full-time employee sourcing and evaluating direct investments, according to an annual survey by the Family Office Exchange released Wednesday. Of the 118 offices polled, firms had an average of three employees involved in the investment process, two of whom had some responsibility for direct stakes.
Driving this push is the perceived lack of returns elsewhere, said Kristi Kuechler, president of the organization’s private-investor center. The average family office surveyed reported a 7.2 percent return last year and there’s less conviction that stocks, bonds and hedge funds will provide stellar returns. In fact, those surveyed reduced their allocation to hedge funds on average in 2016 and most don’t plan to increase it this year.
“The one place family offices think they can still generate double-digit returns is in operating businesses and real estate,” Kuechler said.
Direct investing in companies has become increasingly popular among wealthy families that see value in sidestepping private equity firms’ fees, which typically are 2 percent for annual management and 20 percent of profits. Going direct can also give families more say in investments and allow them to hold stakes longer than many funds permit.
The strategy requires manpower to find opportunities and investigate their financials, and then complete the transactions and manage stakes. In some cases family offices are teaming up on deals, said Kuechler. “That’s a huge trend,” she said.
It also means family offices need to ramp up their deal-making expertise. Such firms are already competing more for investment talent against traditional financial firms, said David Druley, chief executive of Cambridge Associates, which advises investors including family offices.
“They need people that are good at manager selection, that are good at strategy selection and understanding where to deploy capital and how to be effective,” Druley said Tuesday at the Milken Institute Global Conference in Beverly Hills, California....MORE
Bain Capital/Thomas H Lee-Controlled iHeartMedia Probably Facing Bankruptcy (IHRT)
This wouldn't really be noteworthy except for the fact IHRT is the largest operator of radio stations in the U.S. and the debt involved is a bit over $20 Billion....
...In other private equity news FT Alphaville's Further Reading post directs us to this Reuters story:
Super-rich private equity stars rue 'lousy' reputation, say they are misunderstoodI'm not confident the "...further other" locution in the headline is going to catch on.
Especially when in direct competition with Further further.
Possibly also of interest:
Family Office/Outside Managers Not Quite Cutting It? Maybe What You Need Is A Family Bank
Sidestepping Private Equity With a Family Office
Competitive Intelligence Macquarie Style: First Establish a Fake Family Office...
Family Offices as the Apex Of the New Butler Class
Somehow related:
Proctor & Gamble: "Make Your Home Smell Like You’re Rich" (PG)
