Here are, in my opinion, the four most interesting findings:
\- 58% of those surveyed increased allocations to private markets over the past two years.
\- The amount of cash family offices are holding now has increased across the board.
\- Around 25% said exploring new asset classes was a priority when it comes to adjusting the investment process in the near future.
\- 80% of respondents identify both higher risk-adjusted returns and the ability to be a value-add investor as significant benefits of private market investing.
Let us dig a bit deeper. We sampled 55 single family offices and private multifamily offices predominantly in Europe. Please note this survey was only on private markets investment activity, which means the sample is biased to offices that have or plan to be active in the private markets. The data was collected in September 2022, subsequent to significant selloffs in public markets earlier in the year.
First, we look at asset class allocation changes over the past two years. The majority of those surveyed have significantly or slightly increased their cash positions. Private markets saw the second-largest increase in allocations.
Looking forward, what is the outlook for asset classes over the next year? Sentiment in general is bleak. The bright spots of positive sentiment focused around private markets and slightly positive sentiment around real estate and commodities.
Next, we take a look under the hood of private markets activity, starting with how family offices surveyed currently are investing in private markets. Notably, currently 96.4 per cent allocate to venture, with the majority doing so both via funds and direct. The fewest aggregate respondents invested in buyout strategies.
Looking forward, there is a slight contraction, most significantly in venture strategies, with almost twice as many planning not to allocate to the category going forward
(still a very small proportion). Interestingly, there is a reduction across the board for expected fund allocation, but a significant increase in expected co-investments allocations.
Finally, we shift our focus to perceived benefits and barriers to private markets investing. A significant number of respondents said that a perceived benefit of private markets investing is higher risk adjusted returns and the ability to ‘add value’ as an investor.
There’s not too much to unpack here in the barriers to investing in private markets; a reasonably high number report a lack of specific knowledge of asset classes (65 percent). But typical concerns are around risk and liquidity. This tracks with higher expected returns and illiquidity premium.
Lastly, planned changes to investment processes. The key finding here is an increase in plans to enter new asset classes. This is a push for greater diversification, which will require additional expertise, by recruiting more staff or increased use of external advisors.
