iCapital Network has launched an annual report reviewing single family office investment activities in private equity.

Single family offices globally are reporting strong performance via private equity investments, especially in contrast to other vehicles and asset classes held in their portfolios, according to iCapital Network, the online platform.

Private equity investments are common among the majority of SFOs, with almost two-thirds (62 per cent) of the 162 respondents surveyed actively investing in private equity. Of those two-thirds, over 90 per cent allocate 10 per cent or more to it via funds and/or direct investment; over 70 per cent allocate between 10 and 20 per cent to private investments; over 10 per cent allocate between 20 and 50 per cent, while over 8 per cent allocate more than 50 per cent of their portfolio to private investments.

“In our view, the potential for superior investment returns is the single most influential factor in why private equity is viewed so favorably by single family office investors these days,” said Lawrence Calcano, managing partner of iCapital Network. “And likely the potential opportunity to take more of a hands-on role in managing or supervising a direct investment also adds to the appeal – because in many cases, families can provide valuable insights and leadership drawn from their own experience as business leaders.”

Seventy per cent of the SFOs surveyed said their private equity funds outperformed other investments within their portfolios, while 75 per cent said their direct investments outperformed other holdings.

“Many wealthy families take a longer term investment approach and understand that the premium for illiquidity comes from allowing companies to pursue strategies that often require four to six years to execute as well as additional capital,” said Nick Veronis, co-founder and managing partner of iCapital Network. “These families also appreciate the active role that fund managers play, working closely with their portfolio companies to achieve their goals – that alignment and consistent engagement typically does not exist in the public markets.”

“Single-family offices have the autonomy to invest in the ways that best suit the underlying family and its long-term goals,” added Hannah Shaw Grove, senior vice president and chief marketing officer of iCapital Network. “This can be seen in the relatively high allocations to private equity, which parallel the approach used by many large endowments to manage downside risk and increase return potential over extended periods of time.”

Of the SFOs currently investing in private equity, 57 per cent expect to increase their allocation in the next two years. Of the group that was not investing, nearly 30 per cent planned to allocate to private equity in the coming 24 months.

“Strong performance and favorable sentiment will likely prompt fundraising professionals to intensify their efforts with family offices,” said Dan Vene, founder and managing partner of iCapital Network. “We can also expect the number of funds and bankers focused on the channel to increase, making for a more competitive capital raising environment.”