THE GLOB AL F AMILY OFFICE REPORT 2017
47%
CO-INVESTMENT ALLOCATIONS FELL
OF ALLOCATIONS ARE TO EQUITY AND PRIVATE EQUITY
5.5% YEAR-ON-YEAR
BUT 49%
WANT TO DO MORE CO-INVESTING
9
YEARS, THE LENGTH OF THE CURRENT BULL MARKET
REAL ESTATE ACCOUNTS FOR
OF PORTFOLIOS 16.2% Foster says while co-investing has a place within
family offices, he has reservations about two FOs getting into bed together, if both parties are “just the money”. “If that is the case then who has the technical
expertise about the industry? My view is that you need to know if you are the financial muscle or the technical expertise. My advice is: Find out which you are and try and find the counter party.” Meanwhile, hedge funds and direct real estate were
among the family office classes seeing a gradual decline in take up. Despite being a laggard in terms of performance
“ 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
Just 28% of respondents say it is easy to obtain
external professional advice when doing private equity deals, though 65% are confident they have the right in-house skill-set to invest directly. Roach suggests family offices partner with another
family office with direct deal experience. “We co-invest with other FOs, we share diligence
responsibilities,” Roach says. “There will be new co-operative co-investing models
emerging soon that will effectuate this dynamic. In effect, you’ll see a larger FO be willing to partner with a smaller FO with the idea to help scale the industry, disintermediate private equity funds, and transfer knowledge on how to build out a direct deal team.” But while the family offices surveyed are keen to co-
invest—49% want to do more co-investing, and 44% want to maintain their current co-investing activity— they cite challenges including difficulty identifying attractive deals, doing due diligence, and aligning their values and objectives with potential partners.
ISSUE 72 SUPPLEMENT | 2017
during 2016, real estate remains popular, accounting for 16% of the average portfolio. North American family offices are less exposed to real estate—10%— which partly explains why the continent marginally outperformed other regions, with a 7.7% average return. Hedge funds account for 6% of the average portfolio,
down 1% as hedge fund managers failed to deliver high returns to justify their high fees. Foster says his approach to hedge funds is “use them
thinly, at best”. “We target LIBOR plus 200 basis points (+2%).
With hedge funds, we would have to be taking risk equivalent to 4 or 5% because of the fees charged by fund managers and similarly with discretionary mandates. By doing an in-house fund structure, we achieve the same returns but take maybe half the risk we would in an outsourced environment.” With the current bull market nine years old and
one of the longest in history, Susan Ward, managing director of UK global family offices at UBS, says the fact the cycle is entering a late stage is “clearly on people’s minds”. “As we start to think about where we are in the cycle,
some of those more illiquid high-yielding assets may be vulnerable to a downturn,” she says. “That is not to say we are at the end of the cycle.
There are expectations of continued growth both in North America and in Europe—particularly if Trump gets through some of his proposed tax reforms. “But we are moving towards a late stage [and]
we have begun having conversations with clients around tail risk. Clients are asking how they should position themselves and what insurance they should be thinking about over the next 12 to 24 months.”
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