Family Offices Put Faith In Private Equity
Monday, April 05, 2010

Family offices are set to become an increasingly important group of investors to fund managers, particularly as more than two-thirds (69%) will consider forging new relationships with private equity funds in 2010, according to new research by Preqin.

A family office is defined as a company that manages investments or trusts for just one wealthy family.

Preqin, an alternative investment industry analyst, says that family offices represent a vital source of capital for the private equity industry, especially for those managers with smaller and midsized vehicles. The attributes of family offices differ significantly from other institutions, the firm observes, with family offices having more flexibility and fewer restrictions than investors such as pension funds and insurance companies when committing. Their requirements also differ, Preqin notes, with many family offices keen to form close ties with their fund managers.

From its research, Preqin concluded that private equity general partners (GPs) need to be aware of how the needs of family offices differ from those of other investor groups. More than a quarter (27%) require a closer, more personal, relationship with GPs, the survey suggests.

The track record of a GP was found to be "extremely important" to family offices, with 82% of respondents having said that this was a key quality they look for in fund managers.

Nonetheless, a large majority of family offices (84%) said that they were satisfied with the fund terms and conditions they are offered in comparison to just 43% of institutional investors overall. This shows that GPs are generally successful at meeting the needs of family offices in this area, Preqin said.

Of those family offices that want changes to be made to the fund terms and conditions they are offered, 59% felt management fee alignment needed improvement, the survey found.

The study concluded that, overall, family offices are generally satisfied with the performance of their private equity portfolios, and are more satisfied than other institutional investors. 19% of family offices feel their private equity investments have exceeded their expectations compared to just 7% of all institutional investor types surveyed by Preqin in December 2009. A further 65% of family offices feel their private equity investments have met their expectations.

Preqin's Helen Kenyon commented: “Family offices represent a vitally important source of capital for the private equity industry – especially for the mid and smaller sized fund managers. They show a good deal of flexibility and opportunism with regards to making new investments when compared with other investor types which are bound by stricter rules governing investments."

Kenyon concluded that: "We expect that family offices will grow in importance over the course of the next few years, and we are already seeing an increased number of requests for information on this generally reclusive set of investors from our clients on the road seeking capital for new vehicles.”