Families pushed down listed route by ‘reporting headaches’

Private equity has remained a key asset class for European family offices, with 57 per cent considering increasing their exposure to private equity this year, and a further 33 per cent intent on maintaining their current allocation.

In fact, most family offices remain confident that private equity remains a quality long-term investment, and they see the current recessionary conditions as an opportunity to acquire assets at lower or distressed prices. Accordingly, they are looking to access private equity through a wide range of strategies and investment vehicles.

These insights are based on Scorpio Partnership’s engagement with 50 European family offices, which was commissioned by LPEQ, the listed private equity association earlier this year.

The central role occupied by private equity reflects the fact that the majority of families have accumulated their wealth through business or entrepreneurial ventures. Family offices are therefore keen to maintain an entrepreneurial drive through the generations and private equity investing can promote this spirit.

Allocation made to private equity was however found to differ between the different types of family office. Multi-family offices and private bank family offices are more likely to have a modest allocation to private equity. This reflects their more conservative, institutional approach to asset management.

Single family offices often have far higher allocations to private equity, with over 60 per cent of those single family offices surveyed allocating over 15 per cent of their portfolio to private equity. Because they represent only one family, their risk tolerance is often higher and their portfolios are often more idiosyncratic.

While direct investment can give the family involvement and influence, there are liquidity, diversification and administration issues that can make the direct route less attractive. Therefore, a combination of direct investment, limited partnership funds and listed private equity are an emerging trend.

However, juggling this myriad of investment styles is a cause of administrative and reporting headaches. This issue is a key driver behind the increased use of listed private equity, especially by mid-sized and smaller family offices.

Equally, the high investment thresholds associated with traditional private equity funds can make it difficult for smaller family offices to achieve the diversification they would like, leading them to explore a mixed use of listed and unlisted private equity vehicles.

Karl von Bezing is a director at wealth management strategy think-tank Scorpio Partnership.