Soteria Blog

Private Equity & Family Offices

Written by Michael J. Bradburn | Nov 17, 2021 4:11:00 PM

Fidelity has released its 2021 Family Office Investment Study, a survey of 127 single and multi-family offices (median AUM $1.5B), covering a range of investment and operational issues. Notable among the findings was the strong relative growth in the use of private equity.

As the table below shows, allocations by family offices to U.S. Private Equity advanced by nearly two-thirds from 2018 to 2020, the largest jump of any asset class. This trend appears likely to continue. Just under half of the family offices expect to increase their allocations to private equity in the next three to five years. This is the highest share of organizations expecting to increase an asset class. The next highest, at 43% was in the related class of Venture Capital.

 

The intensifying interest in private equity reflects a more general market trend toward private investments among UHNW and institutional investors. But it is also consistent with the likely preferences of those making the investment decisions at many family offices.

We expect that allocations to private equity are likely to increase in the advised portfolios of UHNW investors and that those providers who can evidence expertise in this area, whether RIAs or multi-family offices, will enjoy greater receptivity in the high end of the wealth management space.

Senior Life Settlements are represented in the exhibit above in the Other Real Assets and Other Asset Classes categories. The concept of Absolute or Total Return is the amount of money an investment makes during its lifecycle. In every instance of the asset classes listed above, the Absolute Return is a history lesson.

Life settlements have a known cost and known yield from inception. The ability to earn a high, risk-adjusted yield without exposure to market volatility is a distinct advantage of the asset class that none of the other favorite UHNW PE investments can boast. They all have more than one primary risk that can affect asset prices.

Life settlements are a pure buy-and-hold. Time is the only real risk. Time plays its role in the accretion of value in stocks and other real asset classes too. It is the advantage of knowing the return on investment in advance with a life settlement that creates an organic hedge against the risk of losing your principal. A life settlement’s value can only go one way…Up.