Are family offices really putting more money into private equity funds?

A study has recently been released that says single-family offices are putting more money into private equity funds. But is this really the case? Anecdotal evidence suggests they aren’t.

The research - Single-Family Offices and Private Equity - is by iCapital Network, a US group that says it provides a financial technology platform that bridges high-net worth investment capital with private investment opportunities.

The study makes the point that family offices have allocated a substantial amount of their portfolios into private equity, with more than 70% saying they have allocated between 10% to 20% of their total portfolios to the asset class. Some 162 single-family offices were canvassed for the research, the majority of them in the US.

The 70% figure is no doubt a true reflection of total allocation into private equity - through direct and indirect (funds) methods. But what seems extraordinary is that out of all the family offices investing in private equity, more than 90% say they use funds and only 40% say they use the direct approach. Family Capital has no reason to dispute the iCapital figures, but it appears to go against the grain of its own observations about single-family office portfolio preferences.

Earlier this week, Family Capital spoke to the owner of one of Europe’s biggest single-family offices, and he said his managers had no internal, nor external private equity funds. His exact words were: “With regards to the operating businesses, we are like a private equity team, but with no external funds…and neither do we invest in external funds.”

A couple of emails to other single-family offices came up with similar responses - no private equity funds in their portfolios, but plenty of direct investments, which seems bizarre given the findings of the iCapital study.

In Family Capital’s experience, single-family offices have eschewed private equity funds since the financial crisis of 2008. When it comes to the reasons for doing so, most cite excessive fees, lack of performance of such funds and redemption problems. OK, the amount of money going into private equity funds has risen substantially in recent years, although it’s a lot less than the totals seen before the financial crisis. Some of that increase must be due to rising family office allocations, and that’s probably what the iCapital study is picking up on in its research.

But concerns from family offices remain. And added to these concerns is that single-family offices have often expressed their annoyance that private equity managers don’t have enough skin in the game to justify more allocations.

Maybe more research needs to go into family office allocations before any really conclusive evidence can emerge.