In a study carried out on single-family offices with average investment assets of about half a billion dollars, most of the respondents had made investments in private equity funds. About 70% of the single FOs surveyed are placing between 10% and 20% of their allocations in private equity.
There are several reasons why private equity is becoming more and more appealing to single FOs. The top four reasons are:
1. Strong performance
The performance of private equity firms is very strong. From the study, most of the FOs said that they were getting higher returns from their investments in private equity funds than the fixed income and traditional equity investments.
2. Diversified investments
iCapital Network managing partner, Lawrence Calcano, says that private equity firms are able to invest in diversified companies with exclusive and concealed investment opportunities.
3. Illiquid investments
Calcano added that the illiquidity of private equity investments gives firms the freedom to effect changes that may be nearly impossible in other public markets. These changes are always aimed at using available opportunities to generate more returns.
4. Long-term investments
Most single FOs prefer long-term investments, which are offered by private equity firms. In some cases, these family offices want structures where their ownership in private equity investments can be passed to their children and grandchildren. This is a relatively unique need which is also addressed by private equity firms. FFO Business Management & Family Office managing partner, Rick Flynn, says that they assist single family offices and wealthy families to get capital gains on their investments. They also help in transferring their wealth smoothly to future generations. He adds that private equity investments are very good for this purpose.