My best friend has been happily married for more than 40 years, so I asked him to share his secret. He told me, “My wife and I go out on romantic dates twice a week. I usually go out on Tuesday and she goes out on Friday!”
Opening the second annual IQ-EQ Crossroads conference last week, Group Executive Chairman Serge Krancenblum’s satirical anecdote accompanied perfectly the theme of the event – PERE funds and family offices: A marriage made in heaven?
If the PERE and family office sectors were a couple, would they be a happy one that still enjoys spending time together, one that is drifting apart, or perhaps one that is growing even closer as the years go by?
Our exclusive event, co-sponsored by Allvue, Nomura and White & Case, took place on 27 November in the City of London. Above the skylines, on Landing Forty Two, IQ-EQ created a unique, cross-industry thought leadership and networking platform for the investment community. High-profile speakers explored the key synergies and growing competition between the PERE and family office spheres, and gave the audience a glimpse into emerging trends as they unpicked Serge’s opening questions: Why are more family offices investing in private equity and real estate than ever before? And how is this relationship going to evolve in the future?
Rebecca Gooch, Director of Research at Campden Wealth, was first to speak and shared insight from Campden Wealth’s ‘Global Family Office Report 2019.’ She reaffirmed the theme of the event as she announced that private equity is now the second largest asset class that family offices are investing in, accounting for 19% of the average portfolio. Tony Poulson of Allvue Systems backed this up later in the day as he announced that 98% of family offices are expected to maintain or increase their direct investments over the next 3-5 years. So, where has this shift come from and what does it mean for the PERE industry?
Neil MacDougall of Silverfleet Capital noted that a $30 trillion generational wealth transfer will take place over the next few years. The generational shift will also lead to a shift in investment trends as it will largely be millennials driving activity with a different approach to investment. A quarter of family offices are now engaged in impact investing and private equity is the number one vehicle that these firms are using to facilitate this investment. Given that family office investment in impact is predicted to increase by 25% over the next five years, the PERE industry needs to consider capitalising on this shift and using it to their advantage.
That said, throughout the event it became clear that succession planning was one of many reasons behind a more diversified approach to family office portfolios. Research showed that 55% of family offices believe we will enter a recession in 2020. These fears have led family offices to rethink their investment strategies in order to protect returns. Firms need to be diversifying into alternative and illiquid assets, such as private equity and real estate. This will ensure family offices are mitigating against any possible impacts of a recession – however unlikely this might be.
Further, not only is the investment focus of family offices changing, but also how they are choosing to make those investments. The day’s discussions highlighted the fact that family offices are now investing alongside investment firms, directly into private equity and real estate assets. While they are important investors for PERE firms, they are increasingly becoming their director competitors too.
Last week’s event confirmed that both family offices and PERE should expect significant shifts as we move into the next decade. As market uncertainty continues and a new generation of wealth managers take the reigns, huge opportunities will emerge. It is almost inevitable that both PERE and family office activity will become increasingly interlinked to create that marriage made in heaven.