Richest families boost direct investment

Focus on ‘ growing the wealth’

NEW YORK • The world’s richest families plan to put more money into deals they can hand-pick themselves.

Sixty- six per cent of single- family offices expect to increase their direct investments during the next three years, iCapital Network, an online marketplace that helps the ultra- wealthy access alternative investments, said in a report. They found that more than 60 per cent of the firms already making direct investments increased their bets in the past year.

“A lot of family offices think their experience as entrepreneurs, as business leaders, and as growers puts them in a strong position to positively influence the companies,” said Lawrence Calcano, i Capital’s chief executive officer. Going direct is also “a means to lower the overall fees that they pay across their portfolio.”

The firms are starting to play a more prominent role in the i nvestment world as they move beyond traditional stocks and bonds, with second- generation offices making even more active choices. Firms run by younger family members are more likely to put money into direct investments than those still being run by their founding members, according to the iCapital report.

The report said about 40 per cent of second- generation single-family offices are investing at least 15 per cent of their total portfolios into alternatives, compared to 20 per cent of first- generation single- family offices allocating at this level.

While the first generation usually focuses on preserving wealth, the second concentrates on “growing the wealth and expanding the family office,” Calcano said. The younger generation comes “to see their investments as part of the family business.”

Second-generation family offices are more open to hedge funds, even with the average fund trailing the U.S. stock market this year. Fiftynine per cent of offices run by younger members said they were likely to eventually increase their stakes. Less than a quarter of first-generation offices said the same.

iCapital surveyed 157 single- family offices in the last half of 2016 and first half of 2017, most of which managed more than US$500 million.

“Single-family offices have varying goals with their direct deal programs — some are looking to diversify away from the traditional family industry, while others may be trying to find strategic investments that can generate synergies with the family business, gain tighter control of investments or simply utilize their expertise in a particular sector to uncover overlooked gems. But in general, they are all seeking to access assets that can grow faster than standard stocks and bonds,” said Hannah Grove, chief marketing officer of iCapital Network.