Family Offices and Alpha: The Search for Alpha Goes Private
Family Offices and Alpha: Why Single Family Offices Are Competing To Do Direct Deals and the Risks They Produce
In the eyes of many SFOs, private equity has lost much of its luster as an asset class. Once a darling of investors, with wealthy families competing to gain access to ‘marquee’ funds, today many family offices have become disillusioned and regret earlier decisions to participate in these funds. Nevertheless, they still search for an above market rate of return on their invested capital which has led them back to private equity but via a different path. What caused this dramatic change of heart and what significance does this have for single-family offices?
In my opinion the criticisms directed toward private equity are justified and long overdue. For many years there has been a misalignment between the GPs and the LPs. The GPs of large funds have morphed into asset managers, overseeing huge amounts of capital sliced and diced into numerous asset classes, including real estate, senior debt, distressed debt, mezzanine, as well as buyouts and growth equity funds. And those are only the United States-focused products. Add on a corresponding layer of European, Asian, and emerging markets funds and it is easy to see how a family office invested in a U.S.-focused buyout fund can feel the GP is distracted and really pursuing other goals.
Family Offices and Alpha Topics Covered
- Factors Leading to Breakup of SFOs and Private Equity
- The Distorted Picture
- The Risks of Going Direct