For many family offices, investing in property markets predominantly equates to prime real estate such as iconic hotels, retail parks or city centre penthouse suites. Not many would think of data or energy storage centres, or even care and funeral homes. These seem to fly under the radar but some view them as strategic alternative investments in commercial real estate.
Storage may not seem an attractive proposition but companies are collecting and saving greater amounts of information, whether due to regulatory or competitive pressures and realising they require a strategic rethink to their growing storage needs. This proliferation of data is not only derived from commercial use or corporate activity. Social use whether it is the growth of online video, social networking, compute-heavy applications or mobile data traffic is also driving intense demand for data centres’ compute and storage capabilities.
Moreover, the overall volume of internet data continues to increase globally. For example, the UK’s fixed internet traffic is forecast to rise 50%, along with a 13-fold increase in mobile internet traffic by 2017. IBM believes the cloud services market could be worth $200 billion (bn) by 2020 and last year invested more than $1.2bn expanding its data centres and cloud storage business. While Apple joins Facebook and Google in building data centres in northern Europe to address European concerns for data to be stored closer to users and authorities.
Data drive
A number of family offices have also entered the fray, such as the Smedvig Family Office, which has two data centres in Norway, one near Stavanger and another in the Telemark region, built by its subsidiary Green Mountain. The data centres operate on 100% low cost renewable power and use of free cooling creating unique power efficiency and there are plans to develop in other regions.
Another family office was involved in the development and sale of a substantial data centre in London’s Docklands; the billionaire Reuben brothers have invested in expanding their data centre operating business Global Switch, while property moguls, the late Jack Dellal of Allied Commercial Holdings and Anthony Lyons of St James Capital have reportedly invested in data centres.
The Al Rajhi family office, through its AEP Investment Management unit, owns a data centre property in London’s Canary Wharf, one in Dublin and another in Amsterdam. While venture capitalist Jon Moulton has invested, via his family office Perscitus Advisers, in DataCentred’s UK expansion and roll out of its integrated co-location and open source cloud computing services.
“We always look to invest in an opportunity in which we see high market growth, management commitment and management capability. We believe that DataCentred is one of these happy combinations,” said Moulton, who is the founder and managing partner of Better Capital, the private equity group which owns the Jaeger clothing chain.
Michael Dell’s family office MSD Partners has provided equity to allow his private firm Dell acquire data centre company EMC Corporation for £44bn, giving the firm better access to the fast-growing cloud computing sector. While a family that invests in the renewable energy sector is behind Nautilus Data Technologies, which is building the world’s first waterborne commercial data centre near San Francisco.
Clean technology
Many family offices typically provide venture capital to the clean technology industry due to a commitment to make the world a better place and instil an environmental, social and human (ESH) impact to portfolios.
A number have entered the power storage market in attempt to alleviate pressure on old overtaxed power grids as the use of renewable energy grows. For example, Ambri has received financing from family offices and the super-rich to build prototype storage systems in Massachusetts, Hawaii, New York and Alaska. Investors include Bill Gates; KLP Enterprises, the family office of Karen Pritzker and Michael Vlock; and Khosla Ventures the venture capital firm of Vinod Khosla, one of the co-founders of Sun Microsystems. Gates has also pumped money into storage start-up Aquion Energy, which is creating batteries to provide back-up electricity for wind and solar projects.
Napa, California-based family office Meyer Family Enterprises has funded energy storage for the renewable energy sector according to its ESH investment principles. Prelude Ventures is a cleantech venture firm backed by a family office, while Ceniarth family office is backing Generate Capital’s funding of small-scale, resource-efficient energy storage projects. Also, more US family foundations, family trusts and family venture funds are targeting the sector.
Care homes
Family offices are also expanding further into the health and social care sector and investing in the care homes industry. The lure is the potential for good income-generating opportunities for investors with a long-term yield view, as well as the fact that the industry tends to be non-cyclical and robust, with a steady cash flow, even in times of economic uncertainty.
Even though demand for care home properties is increasing due to an ageing population and increased life expectancy, the sector has often been overlooked by many family offices. Nonetheless, there are some that view care homes an integral part of their investment strategy, such as multi-family office KTN Group whose healthcare division KTN Care acquired UK care home operator ACH in 2014.
Caledonia Investments owned by the Cayzer family has investments in Choice Care Group that provides support services for adults with learning disabilities, mental health disorders or complex needs in southern England. An Israeli family office teamed
up with a real estate venture capital firm to purchase senior care homes located in different areas of North Rhine-Westphalia, while family offices have also been involved in care home developments in Spain. There are even funds dedicated to purchasing and running care homes being offered to family offices and private clients.
Death industry
Nothing is more certain in life than death and taxes, and the funeral business is one that people will always need. In the UK, pre-paid funeral plan sales grew by 9% in 2014 and more than £3.2bn is invested across the funeral sector. The US funeral market is estimated to be a $20.7bn industry, with an average of 2.4 million funerals per year.
The characteristics of the funeral products industry include long-term stability, insulation from economic cycles, and high barriers to entry. This has prompted some family offices to source opportunities in the funeral sector by buying up funeral homes, related services and cemetery assets via a number of private equity funds. These have enabled private investors to acquire funeral homes and centres in Quebec, Canada, and a $15m purchase in Miami-Dade County, US. As well as, the purchase of peripheral companies such as Messenger Holding Corp, a manufacturer of memorial stationery, specialty products and innovative technologies to funeral homes across North America.
