Family Capital spoke to investment principals at five single-family offices about what they will be keeping an eye on in 2018.
Peter Pauley is chief investment officer of Seven Valleys, a single family office founded in 2015 to provide investment and administrative services to a Chinese family. He’s based in New York
There is little value in the major asset classes and we have remained disciplined in our approach, walking away from potential new investments where the math just does not work. That is happening often these days. While momentum is significant right now, our view is that extreme monetary policy has created significant distortion across all investments. Free money has gone someplace. Mix this with cheap debt and increased leverage and we see a toxic brew.
But we do not have a playbook on how it unfolds. So we are sticking to our discipline of buying value and controlling risk. We are re-reviewing the investment case for everything we currently own and selling when others are willing to buy what we own at good prices.
As a single-family office, we do not have to make new investments if the prospective risk reward is not favourable. Sure we are still searching for new niche opportunities, but we remain sceptical about the vast majority of these.
Unfortunately, teaming up with other family offices has not really solved our concern about poor prospective risk/reward profiles, nor does allocating more to private markets, which in our view offer the poorest prospective risk/reward profile. While we are invested in themes such as the move to a cashless society, asset utilization, and artificial intelligence, these themes are also not immune to overvaluation and significant crowd thinking.
After the relative calm of 2017, I suspect 2018 will be much more interesting.
London-based Paddy Walker is managing director of J Leon Group, a UK-based single-family office
Leon continues to be quite fully invested with an unusually low, for us, single digit percentage cash balance. Dig deeper and the picture changes. While we are fully allocated to global private equity funds - 22% of Leon’s overall allocation - we still hold a 20% cash balance in our AUT in which we manage the group’s long-only, UCITS investment. We expect a correction.
Over the past decade, we have also been reducing Leon’s allocation to UK commercial property. At 30% of group assets this has now stabilised and we are happy with the real estate core assets that we have retained. We have little exposure to hedge funds and are unlikely to change this position going forward.
After a tortuous transaction process, we have recently completed the buy-out of Thesis Asset Management and we hold this in Leon’s direct private equity silo. We are generally bearish and continue to run the portfolio under a very diversified and multi-manager model that is skewed toward growth.
Asher Noor is chief investment officer of the Saudi-based single-family office, AlTouq
I personally think that 2018 will be a roller coaster year in terms of economic uncertainty in the developed world. The bitcoin frenzy and frothy equity market returns are making a lot of people dizzy and could lead to dumb allocation choices being made. The “fear of missing out” factor is pervasive, but sophisticated family offices should not fall for it.
Therefore, there is no real need for opportunistic first time punts in the venture capital space or branching out into sectors that any family office has traditionally shied away from. Between capital preservation and capital appreciation, 2018 would be better spent holding onto liquidity, being wary of the impact of disruption to their core operating businesses and focusing more on governance and succession planning.
Not all frontier and emerging markets are equal and if your family office has a smart investment committee, they should be able to pick the markets where real estate and equities are bound to pay handsome returns. Pay serious heed to the startup culture in those geographies too.
Marc Posso is a portfolio manager at Man Capital, a London-based single-family office of the Mansour family
We are generally cautious, but positioned in a way that if there is a small or substantial correction we can hedge fast.
For the long term, we are still quite positive - although, we feel there could be some pullbacks in 2018. That said, there are still some bright spots. In terms of regions, we are quite bullish on China.
We've been underweight Europe for a while, but there are some opportunities we are now beginning to see there. We like the direct side because you can pick some specific sectors, and we like to be seen as a strategic partner.
We've started looking at the venture side and will probably commit more to venture in the year ahead.
Our view on cryptocurrencies and ICOs is there needs to be more regulation around the assets before we make any substantial investment. Having said that, it's a very promising space that we will invest into at some point.
The issue we have with hedge funds is they tend to underperform indices and benchmarks. You want to be long in these markets, rather than long/short. That said, going forward if volatility comes back, then having exposure to hedge funds will be a good thing.
We are concerned about the bubble in the private equity world, some PE funds are overpaying for deals right now.
Ladislav Sekerka is a partner at the Czech-based single-family office, Consillium
We look for an angle that makes sense and is a natural fit for the family office, and you look at the mid to long-term perspective on that investment - that continues to be our strategy.
We are looking both at direct investments (general partner) as well as co-investment opportunities. This is alongside with our continues investments as limited partners in private equity funds and alternative investments.
We are keeping an eye on cryptocurrencies, but in a very passive way as it is difficult to estimate their fair value.