Family offices will drive private equity demand, say general partners

Private equity general partners say the biggest increase in fundraising opportunities will come from family offices in the year ahead as assets pour into private equity funds at record levels.

General partners were asked in a survey which investor class would see the biggest upward trend in fundraising opportunities in the future. The survey, done for the US asset management and technology group, SEI, found that 28% of general partners felt family offices would dramatically increase their exposure to PE funds. That was the highest total of all the investor classes, which included sovereign wealth funds, endowments, foundations, and private banks. Another 42% said family offices would slightly increase their exposure.

The findings show the huge appetite family offices continue to have towards private equity. They also suggest that  earlier scepticism from limited partners towards fees, transparency, and lack of liquidity of private equity funds appears to be waning fast. The report said that growth in the secondary market for private equity funds has helped to assuage concerns over the lack of liquidity. The survey found that approximately four out of every 10 investors and fund managers plan to participate in the secondaries market during the coming year.

The survey also found that commingled and closed-end funds continue to represent the investment structure of choice for both GPs and LPs. But co-investment arrangements are becoming more popular with LPs, particularly as cost, transparency and liquidity have become a bigger issue.

Private equity as an asset class has grown dramatically in the last 20 years and represent a $4 trillion-plus business today, compared with around $30 billion in 1995. From 1995 to 2015, assets in the sector saw an annual growth rate of almost 28%, or a 133 times rise in total assets. In contrast, long-term mutual funds in the US grew 10% annually over the same period, with assets growing sevenfold.