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Family offices ramp up allocations to private equity


There is a strong and growing interest in private equity among family offices and foundations, according to a survey undertaken by Private Equity International (PEI) and Montana Capital Partners.

The study found a third (30 per cent) of surveyed institutions currently have at least 20 per cent of their portfolios allocated to private equity. More than half of institutions questioned have allocated more than 15 per cent.
Such commitments are in contrast to those of the majority of private equity investors (LPs) more broadly. PEI’s Private Equity Investor Sentiment Survey, carried out in June this year, found over half of LPs (53 per cent) allocating less than 10 per cent of their portfolios to the asset class. The average allocation for pension funds and insurance companies stands at 7.3 per cent and 3.6 per cent respectively, according to data from PEI’s Research and Analytics. The average private equity allocation among the family offices and foundations in PEI’s study was 14.7 per cent.
As well as revealing strong current interest, the study indicates an increasing bullishness on the part of family offices. Thirty nine per cent of respondents says they would be upping their allocation to private equity in the year ahead, while just under a third (29 per cent) will be maintaining current levels.
“It’s clearly positive for private equity fund managers to see such strong interest among these investors and that many are looking to up their allocations is testimony to the relationships the industry has built with them,” says Dan Gunner, director of research and analytics, PEI.
“The asset class has matured to a point where smaller investors feel very comfortable with it and, being more flexible than some of the bigger institutions, are able to exploit opportunities with non-traditional assets.
“It’ll be fascinating to see how their relationships with GPs evolve as family offices increasingly look to exploit direct and co-investment opportunities as well as those in the secondary market.”
In terms of accessing the asset class, the majority of family offices investing in private equity – 87 per cent of those questioned – use primary funds. Fund of funds are also popular with more than half of those institutions questioned (53 per cent) using such vehicles. Over one third (37 per cent) are currently co-investing with funds while one in ten look for co-investment opportunities with other family offices.
The secondary market is increasingly popular for family offices keen to exploit attractive cash flow profiles, earlier liquidity opportunities and a shorter J-curve. Around two thirds of the institutions questioned are actively investing in secondary funds. A third (30 per cent) currently purchase direct secondary positions and one in ten has sold positions in the secondary market.
Some see increased secondary activity as a consequence of regulatory change meaning banks and other financial institutions are being forced to offload assets, often at discounted prices. Thirty per cent of the family offices and foundations questioned expect that supply of assets to slow. The majority, however, 63 per cent, agrees that the secondary market is now well established and deal volume will stay at the same level and stabilise in the short term, particularly at the small end of the market. 
“We have also noticed that our deal flow at the smaller end of the secondaries market has been very stable, and in fact increasing, over the last quarters, which many considered to be slow months,” says Marco Wulff, partner at Montana Capital Partners. 

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