A couple of investment firms that in some ways contrast sharply have a common quality - what they deliver is popular with family office clients around the world.

Family offices have been pushing into private capital markets and often tap into business sectors which they made their wealth in the first place, but listed equity markets have also shot the lights out this year, and returns from certain sectors are drawing family office interest. 

A pair of very different investment firms – AUA Private Equity Partners and Cadian Capital – both have in common an important cohort of family office investors, and appear to be likely to go on attracting FOs, given their ability to tolerate medium-term investment timeframes. They serve to illustrate the kind of qualities that, their managers say, family offices seek out.

AUA Private Equity Partners has a specialist niche in putting money to work in family-run, Hispanic businesses in the US. Cadian Capital is a technology, media and telecoms investment house – also focusing on a clear speciality and adopting a patient, value-seeking approach. These two investment houses, at first glance, look very different but a common thread appears to be a focus on the long-term and on hunting for qualities that other investors might miss out on. 

In the case of AUA, the business focuses on lower mid-market private equity opportunities, in consumer products and consumer services. It works with family-run businesses or companies targeting America’s Hispanic community; it typically will make investments of $15 to $75 million in companies valued between $25 million to $200 million.

Family offices are among its investors, including one from Latin America and one in Europe, Andy Unanue, one of three partners at the firm, told this publication. Fund of funds, endowments and other organizations invest as well. 

“We do a lot of co-investing business,” Unanue said. He argues that the Hispanic business area the firm focuses draws from the “fastest-growing population segment in the US”. It is a sector that is relatively under-covered by the existing private equity space and ripe for development. Such firms are typically family-owned rather than on public markets. 

The sector is also familiar to Unanue: “It is what I know. My business partners have done a lot of investing in the Hispanic and multi-cultural space.” There are a total of nine financial professionals in that business; fellow partners are Steven Flyer and David Benyaminy. 

Unanue ran a Hispanic-oriented, family-owned food business - Goya Foods, where he was chief operating officer from 1999-2004. In addition, by targeting family-owned businesses, AUA Private Equity says it is is taking advantage of the largest inter-generational transfer of wealth and business ownership in the US history, as Baby Boomers retire. The other partners also have experience in the multicultural and family business space. AUA Private Equity’s strategy matches operational and investing backgrounds to the sectors the partners know well, it says. 

TMTs
Eric Bannasch is the founder of Cadian Capital (est. 2007) and a very different creature from AUA – apart from the family office angle, and the long-term, patient mentality applied to the portfolio. 

Cadian, with $1.8 billion in assets under management, is, unlike (it says) most TMT funds, a value-based investment house (seeking stocks trading below what is considered fair value) rather than a growth-based fund house. The portfolio has returned 28 per cent so far this year; it typically holds fewer of the big gorilla tech stocks than is the norm (“FANGs” such as Facebook, Amazon, etc.) and looks for stocks that might have fallen out of investors’ favor. Cyber-security has been an important driver of the fund’s returns this year.

The firm has recently returned from a trip to Hong Kong, meeting investors, such as from family offices and private banks, and some other institutions, Bannasch said. 

“Some of our best relationships are with family offices. They tend to be more nimble and like broad mandates. They are looking for real returns and they are more accepting of certain risks because they are getting paid for bearing that,” he said. 

“We figured it was time to talk to the family offices in the Asian region. That cohort is increasing,” he continued. Many family offices in Asia have made money in some of these internet/new economy areas, so they are naturally interested in a fund that looks at such areas, he said. “We can speak the same language and talk about the same business models. They [Asian FOs] are definitely keen to diversify away from China.”

Besides investing in private capital and listed businesses, another trend for family offices in recent times has been direct investing, likely to be seen more among larger FOs with the due diligence resources to hunt for opportunities and screen them. Survey evidence showed that US FOs wanted to raise direct investing activity this year.