Rising Allocations to Private Equity by Family Offices

In the world of finance, family offices (FOs) are increasingly turning to private equity as a key asset class for investment. With the potential for impressive returns and access to hard-to-reach sectors such as technology, private equity has become a favorite among wealthy families looking to grow and protect their wealth for future generations.

According to a recent study by Deloitte Private, private equity allocations in family office portfolios have surpassed equity allocations for the first time, indicating a shift in investment trends. Despite challenges such as slower distributions and geopolitical uncertainties, private equity accounted for 30% of the average family office portfolio in 2023, up from 22% in 2021.

One of the driving factors behind the growing interest in private equity among family offices is the allure of technology investments. Family offices, especially the next generation, are avid investors in technology sectors such as healthcare tech, biotech, fintech, green tech, and artificial intelligence. These innovative sectors offer the potential for higher returns and the opportunity to integrate new technologies into existing family businesses.

While private equity offers attractive investment opportunities, there are challenges in accessing the best funds and managers. Private banks, which have been building dedicated teams to serve family offices, may not always have the relationships with top private equity houses to offer the best investment opportunities. This has led some family offices to bypass private banks and invest directly in private equity and venture capital.

Direct investments in private equity have become increasingly popular among family offices, with 38% of their PE portfolios allocated to direct investments, according to a UBS study. Larger family offices, with assets over $1 billion, are more likely to allocate a significant portion of their portfolios to direct investments, highlighting the appeal of control and transparency in investment decisions.

Despite challenges in the current investment landscape, family offices remain confident in the long-term returns of private equity. With a focus on diversification and the potential for better returns than public equities, family offices continue to see private equity as a key component of their investment portfolios.

In conclusion, the rise in allocations to private equity by family offices reflects a growing trend towards alternative investments and a focus on long-term wealth preservation and growth. With access to innovative sectors and the potential for strong returns, private equity has become a favored asset class among wealthy families looking to secure their financial futures.