The data broadly confirms the picture painted by the figures from Highworth Research, with which this news service is exclusive media partner. Family offices like private market investments in the volatile economic environment.

A recent survey of 179 North American family offices shows that a high percentage (90 per cent) hold private equity investments and 61 per cent hold venture capital, a sign of how these organizations have turned to illiquid assets in pursuit of returns amidst volatile times.

The data, produced earlier in November by Campden Research and in association with Royal Bank of Canada, also broadly chimes with a larger (781) number of single family offices that are tracked by Highworth Research, the data and research group with which this news service is exclusive media partner. (Highworth unveiled its North American offering earlier this year.)

Among other findings of the Campden/RBC report was that the collective AuM across North American family offices was estimated at $182 billion. The average family represented from North America had wealth of $2 billion. Next Gens’ influence continued to grow and drove more family offices to participate in sustainable investing. In 2022, 37 per cent of North American family offices engaged in sustainable investing, up from 34 per cent last year and 26 per cent in 2019. That sustainable investing activity as a share of portfolios has risen over time. In 2020, the family offices in North America who engaged in sustainable investing dedicated an average of 16 per cent, which rose to 20 per cent in 2022, and is expected to rise to 31 per cent in five years’ time. 

Some 46 per cent of respondents in North America said they would allocate more to private equity funds and 41 per cent to direct investments in 2023, with 35 per cent planning to allocate more specifically to venture capital and 34 per cent to private debt/direct lending. Another 41 per cent plan to allocate more to real estate.

North American family offices beat their peers with an average portfolio return of 15 per cent in 2022 compared with 13 per cent in Europe, 10 per cent in Asia-Pacific and a 13 per cent global average. This performance is largely attributed to strong gains within private equity. Venture capital stole the show, with an average return of 26 per cent, followed by private equity funds and direct private equity at 22 per cent and 21 per cent respectively. 

A desire by family offices to hold more assets such as venture capital has been around for several years because VC investors receive more returns to compensate for less liquidity – a compelling proposition when yields on listed equities were squeezed in the decade after 2008 by ultra-low interest rates. (See a related story here.)

Succession
For North American family offices, 30 per cent of Next Gens have already assumed control of their families’ operations – with another 27 per cent expected to do so within the next decade. However, only 33 per cent of family offices have a succession plan in place for senior leaders and 40 per cent think they do not have a next generation member suitably qualified to take over.

The pandemic and an aging population made healthcare an attractive space for investors. Three in four family offices invested in healthcare this year and 39 per cent plan on increasing their investment in 2023. Biotech, which 62 per cent of North American family offices invested in, was the second most popular technology for investment, followed by fintech (59 per cent), digital technology (52 per cent) and green tech (50 per cent). 

Looking to 2023, outside healthcare, the areas most likely to see a rise in allocations are artificial intelligence, with 40 per cent of those invested there planning to increase their allocations, green tech (35 per cent) and biotech (34 per cent).

Crunching the numbers
Alastair Graham, director of Highworth, said that Campden/RBC’s findings on sustainability were broadly matched by data from Highworth’s larger family offices database in North America.

“There is a practical way to test whether the 37 per cent of Campden’s 179 family offices investing in sustainability is also reflected across the wider family office universe. This is by using the Business Sectors filter on the Highworth Database and selecting those industries in which family offices have invested through private equity or VC. Examples of such sectors include clean-tech, renewable energy, environmental protection products, forestry, healthcare, and waste management. Using this filter shows a total of 304 family offices out of 781 investing in these sectors, or 39 per cent – very similar to the 37 per cent result from the smaller Campden survey,” Graham said in a note to this news service about the report.

The Highworth Family Offices Database for North America covers single family offices with estimated collective AuM of $976.88 billion, or an average of $1.25 billion per family office. 

Family offices’ AuM – beware of averages
Graham notes that in the case of his Highworth database, it provides the opportunity to understand why an average AuM for a comparatively large number of single family offices has to be "treated with caution." 

"A table below shows that with a much larger number and wider spread of family offices the private equity or VC investment focus on specific business sectors becomes more diluted and, except for consumer internet, there is limited correlation of interest between the smaller and larger group," Graham said.

Venture and private equity
When comparing investment in the major alternatives of private equity, venture capital and real estate, it’s clear, Graham said, that these favorite asset classes for the smaller group of family offices surveyed by Campden and the larger group on the Highworth Database are indeed correlated in that they remain favorites for both groups. 

However, the larger the group of family offices, the more venture capital is practiced, while in the smaller group there is greater enthusiasm for real estate investment, as the following table shows, Graham added.