Family offices are shifting from allocating capital from external funds to invest direct. Direct investments to private equity and real estate funds increased from 6% in 2009 to 11% last year.
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A study by the Wharton Global Family Alliance said single-family offices (SFOs) are investing directly based on declining fund returns, possible conflicts of interest with managers, and high fees.
SFO Upsher Asset Management has 7% of its portfolio in direct investments, up from zero five years ago.
The Wharton Global Family Alliance is a unit of the University of Pennsylvania’s Wharton School that focuses on wealthy families and their businesses.
The trend is a result of the 2008 crisis and the 2009 recession. Increasing numbers of family offices are finding fund performance to be unacceptable. They are also concerned about conflicts of interest at large financial-services companies.
The survey had 106 participants from 24 countries. Even before 2008, SFOs were paying more attention to risk management, liquidity, and higher fees in light of poor returns instead of what it cost to invest.
The study also showed that SFOs increased staff by 25% to select money managers and another 12% to monitor performance.
This may be a trend in which you can position yourself to help SFOs with manager selection as well as monitor performance after they have been chosen. There are multiple ways
to work with family offices.
The more flexible structures that have emerged because of technology as well as the Dodd-Frank legislation has opened the doors to advisor involvement.