Premium

Why family offices will continue to plough money into private markets

Listed tech giants like Netflix are starting to yearn for the quiet life preferred by family office investors as their shares, once so buoyant, get trashed by investors fearful of interest rate hikes and war in Ukraine.

Rather than raising their expectations, today’s market participants expect to moderate them. Even the smallest of disappointments trigger dramatic price reversals by depressing long-term forecasts. Expensive growth strategies which used to pump up bullish investors are not impressing an army of sceptics.

To reduce the risk of portfolio volatility, family offices, institutions and asset managers, like family-backed Schroders, are hiking their exposure to private assets

With SPACs and IPOs out of favour, tech-driven ventures are striving to find new ways for employees and shareholders to sell stock when needed, without attracting too much fuss.

Family offices and their principals have always seen the importance of privacy and they are prepared to help out. Peter Thiel, Tim Draper and Scott Banister, a crypto-security entrepreneur, are among those backing new secondary trading platforms for investors in private ventures. In the first quarter, average prices fell 20% but this was below the extremes seen in the public markets.

US-based Forge Global, the largest pre-IPO platform, generated trading volumes of $12 billion in 2012, under the lead of serial entrepreneur Kelly Rodriques, a former pole vaulter for Fresno State. Its institutional backers include Wells Fargo and Temasek. Jim Herbert, founder of First Republic Bank, has just joined the board.

In March, Forge reversed into a SPAC sponsored by fintech specialist Motive Partners, co-founded by Blythe Masters who has a penchant for developing new securities and markets. She was renowned for co-leading JP Morgan’s creation of credit default swaps prior to the 2008 slump and went on to get involved in blockchain. Motive is keen to develop tech-driven trading platforms as a substitute for services offered by banks.  

EquityZen, led by Atish Davda, is Forge’s main US rival. Tim Draper backs the business, as well as Forge Global: he is a fan of cryptocurrencies, perceived as part of a brave new financial world. 

Igor Tulchinsky’s World Quant hedge fund, renowned for its relentless search for stock market alpha, is another backer, along with Vaidya Capital Partners, founded by Jay Vaidya. According to Pitchbook its co-investors have included Brunei Investment Agency and Tiger Global.

Secondary platforms report on overall trends to guide their clients and cannot avoid reporting bearish sentiment. But its prices never swing as far, or as fast, as public markets when they are soaring or crashing. 

Investors want to buy and sell stock on a confidential basis. They are not remotely interested in generating “beta” by timing the market.

To reduce the risk of portfolio volatility, family offices, institutions and asset managers, like family-backed Schroders, are hiking their exposure to private assets. Shares in Forge Capital, have retained their post-IPO premium, given that it supplies a service to private ventures. 

According to Forge Global, the average price of its trades fell 20% during the first quarter as employees and shareholders reluctantly came to terms with putting stock on its market for personal reasons.  

It points out that insiders are not constrained by annual reporting requirements. They can supply data to guide buyers and sellers on a quarterly, monthly or daily basis as required. The price record can also provide a basis for new employee compensation deals, without needing to rely on exaggerated market reactions.

The 20% drop compares to a fall of 31% for a passive IPO fund sponsored by Renaissance and a recent 40% writedown at delivery venture Instacart. In the year to date, Netflix is down 67%. The FANG+ index has fallen 28.7%. 

Roughly 60% of indications of interest on Forge’s secondary market were registered by sellers and 40% from buyers. This suggests further falls are on the cards at prices below recent funding levels. But at least future transactions won’t be viewed through the distorting lens of markets and the media.

Subscribe

You will need a Premium Plus Subscription to access this database.

Exclusive news, analysis and research on global family enterprise and private investment offices.

Access to the most comprehensive fully interactive database on global family offices, principal investment offices, and family enterprises.

Check Deal Data, Senior Staff, and New Analysis on more than 1000 family/principal investment and holding groups

Already have an account? Login

Subscribe

You need at least a Premium Subscription to read this article.

The most comprehensive information service on the global family enterprise world, featuring exclusive news, analysis, research and data on global family enterprises, family offices, and private investment offices.

Premium

£299

per year

  • Exclusive reports, analysis and commentary
  • Exclusive access to family/private investment office deal information
  • Exclusive interviews with principals and senior management of family/investment offices
SUBSCRIBE NOW

Premium+

£399

per year

  • Access to All of Premium
  • Access to all of FamilyCapital Analytics, our interactive database with more than 1000 detailed profiles of family investment groups

More Info

SUBSCRIBE NOW

Already have an account? Login

You've reached the end.

Continue reading free articles by registering as a Member.
Or choose a Premium Plan.

Membership

Free

  • Exclusive reports, analysis and commentary
REGISTER NOW

Premium

£299

per year

  • Exclusive reports, analysis and commentary
  • Exclusive access to family/private investment office deal information
  • Exclusive interviews with principals and senior management of family/investment offices
SUBSCRIBE NOW

Premium+

£399

per year

  • Access to All of Premium
  • Access to all of FamilyCapital Analytics, our interactive database with more than 500 detailed profiles of family investment groups

More Info

SUBSCRIBE NOW

Already have an account? Login

Leave a Reply