In light of the global health and economic crisis, 2020 was a year like no other, ultimately presenting family offices with numerous challenges and opportunities. Despite these challenges, alternatives such as private equity funds, hedge funds, real estate and direct investments continued to gain appeal, as many recognized the unique opportunities presented amid a volatile market environment. Throughout this piece, we highlight key evolutions playing a part in the continued success of family offices, with most citing their long-term investment horizon and high allocations to alternatives as the main drivers.
- Continued Private Equity Fund Exposure
- Resurgence in Hedge Fund Appeal
- Sustained Real Estate Exposure
- Direct Investments Gain Appeal
Introduction: The rise in popularity of alternative investments amid market turmoil...
Amid market turmoil, alternative investments have continued to be a key focus for family offices seeking diversification and enhanced returns. Data concludes that the majority of family offices are performing above or in-line with targets, despite the pandemic. As stated in BlackRock's most recent Global Family Office Survey Report, which combines data aggregated from a survey completed by 185 family offices globally, these private wealth vehicles have remained relatively unflustered in uncertain markets, with just 23% of family offices making material portfolio changes throughout the year.
Continued Private Equity Fund Exposure:
As recent volatile markets have necessitated diversification in transaction and financing structures, private equity transactions have been on the rise, with family offices increasingly considering these deals throughout 2020. Private equity dealmaking bounced back to finish on a high note after the COVID-19 pandemic brought a tumultuous March and April.
Family Offices Showing Private Equity Fund Exposure:
- - Generated far superior returns (compared to other alternative asset classes)
- - Smaller groups showed more interest in direct PE investments
- - Greater control offered by private equity
- - Most popular asset class on the FINTRX platform (80%)
Resurgence in Hedge Fund Appeal: Even amidst a worldwide pandemic, many hedge funds outperformed in 2020...
The global hedge fund industry is successfully weathering the global coronavirus pandemic, with firms continuing to build talent and utilize technology to adapt investor relations and operational functions. Recent market turmoil and expectation of sustained volatility have actually re-invigorated hedge fund appeal. As stated in BlackRock's Global Family Office Survey, by May of 2020, "13% of family offices intended to raise allocations towards hedge funds. Many family offices noted they are focusing once more on hedge fund strategies as they contemplate their risk-adjusted returns in more volatile market conditions." (BlackRock Global Family Office Survey, August 2020).
Now, these hedge fund operators are looking to expand their influence...
- - Hedge funds appear to be enjoying a resurgence as many recognize that they could be well-positioned to profit from a more volatile and dispersed environment
- - Some are using hedge funds as a substitute for fixed income or other diversifiers
- - More popular with multi-family offices with a higher AUM
Sustained Real Estate Exposure:
Real estate is typically at the center of any strategic review and represents an increasingly important asset class for family offices as it presents the unique opportunity to continuously generate stable cash flow. Real estate investing offers the potential to earn significant returns and add meaningful diversification to your portfolio, even in turbulent markets. Many family offices will leverage real estate investments for the transfer of assets across generations and its appreciation predictability.
Benefits of Real Estate Investments:
- - A more hands-on approach
- - Potential for superior returns
- - An outlet to apply industry knowledge
- *Most popular with single family offices and those with a smaller AUM
During this period of uncertainty, we noted three key themes in regards to family office investment allocation preferences:
- - Crisis reinforces the need for diversification
- - Family offices have managed to navigate this crisis through diversification
- - Alternative investments are characteristic of a family offices portfolio, especially in times of uncertainty
- COVID-19 has disrupted markets and economies around the world. But with disruption, also comes opportunities. Although we expect continuing disruption and uncertainty, we remain confident that those who remain focused and proactive will be well-positioned to create sustainable, long-term value in the future.
The FINTRX family office data and research platform combines over half a million data points on 11,000+ family office professionals and nearly 3,000 unique family offices globally. Built with the asset-raising professional in mind, FINTRX features state-of-the-art data exploration and visualization tools, engineered to provide the most effective means of targeting family office LPs.
The beauty of the above is that all the information our research team gathers is completely proprietary and solely offered by FINTRX. As family offices continue to diversify their investment allocations and advance the scale of their operations, the FINTRX data platform constantly evolves alongside.
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