Fortifying the foundations

Yields are up dramatically and the vast majority of family office principals plan to maintain or increase deal flow. As they struggle with execution, is the end of this winning streak in sight?


nother bullish year, unpredictable politics, and a growing fondness for direct deals all formed part of the family office landscape during 2016. So how are family offices

structuring their portfolios as the economy enters the later stage of a record cycle? Expansion across the global economy saw family

offices rewarded for the bolder approach they took during 2016, achieving an average return of 7% up from 0.3% the year before. The turnaround was partly driven by strong

performance of equities and private equity, which respectively make up 27% and 20% of the average portfolio, a share which looks set to grow according to indications from participants. But Shiraz Poonevala, director of investment at GP

Group, says improved returns are more to do with better year-on-year performance across all asset classes, rather than the way family office portfolios morphed during the year. “As they say, a rising tide lifts all ships,”

Poonevala says. A series of arbitrages between global markets and

a dramatic geopolitical landscape also put some investors in a particularly favourable position, says Simon Foster, chief executive officer at TY Danjuma Family Office. “For example, the currency movement associated

with Brexit,” Foster says. “For us, even though we are a UK-domiciled

family office, we traded away from the pound when it was on high before the Brexit vote, given the uncertainties, and into US securities. With the movement of cash we were able to pick up some good returns by riding on the right side of geopolitical movements.”

6 CAMPDENFB.COM The Global Family Office Report 2017 (GFOR)

historically has shown a growing thirst for direct deals among family offices. More than 90% of respondents for this year’s report say they plan to maintain or increase allocations to direct venture capital/private equity, and co-investment deals. But such deals were being stifled by execution

challenges: In reality, within the private equity asset class, co-investment allocations fell 6% year-on- year, and active management fell 4%, while the use of funds increased 8%. Foster says over the last five years, direct private

equity has been a hot topic in the family office community. “Everyone is talking about how good it is. The

problem is, it is difficult to do,” he says. “Maybe part of what we are seeing [with the

increased use of funds] is: There has been such a drive, and now some have said, ‘you know what, enough of this, maybe we’re better doing it through funds than doing it ourselves’.” “A lot of people have said they want to head

into private equity but in order to be successful as a family office in private equity, you need to have the right team, the right people, and the right deal flow.” Josh Roach, chief investment officer at Lloyd

Capital Partners, says while there are good reasons to do direct deals, “there are even more reasons not to do directs”. “A family office (FO) really needs to be

committed to building-out its platform and budget. You are basically building a private equity platform, but the cost to build-out cannot be monetised across lots of [investors], you only have one client to absorb those costs. So to make it all work out, you need really good returns on the direct [deals].”


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