How Private Equity Can Expand Wealth for Intergenerational Families

In over thirty years advising wealth creators, and from our own experience as entrepreneurs, we understand the importance of protecting wealth for generations. Many families come to us with assets focused in closely-held family businesses– and we encourage them to seek out additional opportunities in private equity. Research from Morgan Stanley and UBS confirms this approach — a new report surveying single and multi-family offices shows that the assets under management by family offices and their respective allocations to private equity have never been higher. With nearly 70% of the single-family and multi-family offices in existence today created in the last two decades, intergenerational family wealth is being created faster than ever before. Given their rapid increase in size and sophistication, family offices are primed to play an ever-larger role in the private markets over the next decade.

Why Private Capital?

For decades, pensions and endowments have been the earliest stakeholders and the largest investors in private capital. However, most large pensions and endowments are already full or close to their asset allocation targets to private capital. Furthermore, when their stock and bond portfolios decline in value, as they have been in the beginning of 2022, these institutions often need to rebalance capital away from private capital positions to maintain their targeted exposure to stocks and bonds.
During this period, intergenerational family wealth has multiplied. As of April 2022, Morgan Stanley reports that family office assets under management (AUM) have grown to $5.5 Trillion. For context, family offices now manage over a trillion dollars more than the entire global hedge fund industry. With intergenerational families’ explosive growth in assets, they increasingly have more capital, and greater appetite, to allocate towards private capital opportunities.
Moreover, unlike pensions or endowments — which are legally obligated to fund retiree distributions or university spending with the institution’s investment portfolio — family offices most often do not face the same burden of funding near- term spending out of their investment portfolio. Since family offices are often investing money on behalf of future generations, they are increasingly able to accept illiquidity risk to capture greater market returns. The result is that intergenerational families make up an ever-increasing share of new allocation to the private equity sector.

How Family Offices are Investing in Private Capital:

According to the UBS Global 2021 Global Family Office Report, which interviewed global family offices with $225 billion in total net worth, the average U.S. family office surveyed was 21% allocated to private equity and of those family offices, 42% wanted to increase allocations to direct deals and another 26% want to increase allocations to private equity funds/funds-of-funds. In addition to having an average of 20% of their investable assets in private capital, intergenerational families continue to seek attractive risk-adjusted opportunities in the private markets.
Moreover, family offices’ intergenerational time horizons also allow them to take on longer duration, thematic investments in transformational technologies and industries. Take, for instance, decarbonization or early-stage disruptive biotechnology. The time-frame needed to ideate, create, and eventually commercialize next generation battery-storage or new molecules fighting protein degradation can take years and in some cases decades. To invest in these transformative technologies, investors need to be able to handle the duration of investments that might take a decade to pay off. For this reason, families are often uniquely positioned to invest in generational, thematic transitions because the very nature of the capital they steward is intergenerational itself.

Balentine Can Help

Balentine has had a robust approach to private capital since our inception — and in the future we see these strategies playing an ever-greater role in helping our clients meet their long-term goals. Today, we work across traditional fund of fund vehicles, where we are looking for broad market exposure through to direct funds; co-investments alongside fund managers; and select direct investments. This year, we launched a first for our firm in the form of a thematic vehicle, Decarbonization 2022, which looks to blend different private equity approaches in a single vehicle organized around the intergenerational investment opportunity presented by the transition to net-zero.
Should you have further questions about our private capital investments, family offices, or any of the details related to your personal financial situation, reach out to info@balentine.com and we will connect you with a relationship manager to address your needs.
 

Citations:
“Global Family Office Report 2021.” UBS Family Office Access, UBS, https://www.ubs.com/global/en/global-family-office/reports/gfo-r-21-4-client.html.
Son, Hugh. “Morgan Stanley Aims to Serve the Richest of the Rich as Family Offices Grow to $5.5 Trillion in Assets.” CNBC, CNBC, 11 Apr. 2022, https://www.cnbc.com/2022/04/08/morgan-stanley-unveils-family-office-unit-looking-to-serve-richest-of-the-rich.html.