Family office investors turn to private equity to enhance long-term portfolio returns


According to Campden Wealth and Titanbay’s 2023 Ultra-High Net Worth Private Equity Investing Report, 84% of ultra-high net worth (UHNW) investors own private equity investments, with another 10% interested in the asset class.

The report, based on responses from 120 family offices and individuals, found that the primary motivation for investing in private equity is to increase long-term portfolio returns.

“That’s a stat that was way more than I expected,” said Adam Harrison, head of strategic partnerships at Titanbay. “The report found that 67% are driven by a desire to increase returns when adding private equity to their portfolios (the number one motivation).”

In addition, the report found that investors are diversifying their portfolios with private equity investments to reduce their exposure to market volatility (the number two motivation for 37% of respondents) and particularly for investors with operating companies to gain exposure to emerging Obtaining technologies / new industry developments (for 25% motivation number three).

In 2021, respondents’ private equity portfolios generated an average of 24% net internal rate of return (IRR), with buyouts performing particularly well (31% IRR), followed by growth equity and special situations (25%).

Currently, the average UHNW investor invests 20% of their total portfolio in private equity. On average, however, investors plan to increase their private equity exposure by another three percentage points to 23%.

“A key finding of the study was the remarkable growth in private equity investing,” says Harrison. “For many, allocations had doubled over the past two years and investors were looking to continue increasing their private markets exposure as a key driver of long-term performance. It is clear that appetite for the asset class is increasing at a rapid pace along with investor sophistication.”

In general, UHNW investors are diversified across different strategies but gravitate toward growth opportunities. On average, they allocate 21% of their private equity portfolio to venture capital, 28% to growth capital, 26% to buyouts, and 11% to special situations. The most popular sectors for investment are information technology (with 70% of participants holding investments in this sector) and healthcare (67%).

The investors surveyed outlined their intention to make about eight new investments over the next 12 months: an average of three funds and five direct deals. On the funds side, there is a greater focus on relatively smaller private equity funds (with 62% being funds with less than $250 million under management and 42% being funds with between $250 million and $500 million under management prefer).

“UHNW investors take a sophisticated approach to portfolio construction and look for diversification across strategy, geography, vintage and fund size,” says Harrison. “As we see across the broader investment market, healthcare and technology have proven to be very popular and attractive sectors.”

A third of the investors surveyed hold “responsible” private equity investments and invest an average of 24% of their PE portfolio in such investments. For the majority of investors, these “responsible” investments outperform traditional ones (59% of correct participants).

“This is an important finding. This adds to the growing evidence that there need not be a trade-off between financial return and impact,” said Dominic Samuelson, Chief Executive Officer of Campden Wealth. “26% of participants are exploring opportunities, and within five years the average allocation is expected to increase to 38%.”

The top investment risks over the next two years are geopolitical/trade tensions (26%) for participating UHNW investors. The risk of a recession in core markets and escalating inflation are relevant for 24% and 12% of respondents respectively.

However, participants emphasize that they are patient investors with long-term strategies that do not place undue weight on short-term market noise.

“Define your liquidity needs and risk tolerance before committing capital; Set a strategy and follow it consistently, and focus on education and relationship building throughout the journey,” Dominic Samuelson summarizes the advice. “Based on the findings of the report, this generates a high-quality deal flow, increases due diligence power and reduces the risk of loss.”

For more information on Campden Wealth and Titanbay’s 2023 Ultra-High Net Worth Private Equity Investing Report, click here.

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