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Partners Capital Brings "Endowment Mindset" To Investments
1 August 2022
The founders and managers of investment houses, such as private equity firms, have plenty of insight into what drives returns. And that means that serving this very distinct population needs a laser-like focus on achieving results in all financial weathers. Private is where returns are
Partners Capital, a global outsourced chief investment office firm overseeing $48 billion, has been operating in the OCIO space for 21 years, and advises families and institutions such as the endowment funds of Oxford and Cambridge in the UK and Syracuse University in the US. It also serves institutions in the arts, sciences and healthcare fields, such as the Metropolitan Opera Company and Cancer Research Institute.
One distinctive point is that a lot of the private clients of Partners Capital are themselves owners and partners of investment firms. Partners Capital has clients from firms such as Blackstone, KKR, Bain Capital, TA Associates and Summit Partners, for example.
“If you’re a successful partner in an investment firm you often want to diversify your wealth and sources of return beyond what your own firm offers,” Paul Dimitruk co-founder and senior partner of Partners Capital, told this news service recently.
Partners Capital builds family endowments for these investment professionals, many of whom are first generation wealth creators.
Other Partners Capital clients are multi-generational families who join as Partners Capital clients when they recognize the complexities and challenges of multi-generational investing, he said.
“One should think of family wealth as a long-term endowment much like a college endowment…that frames everything,” he continued.
The ascent of OCIOs such as Partners Capital reflects how some institutions, including multi-family and single-family offices, have found it easier and less expensive to farm out the job of making investments, and dispensing advice, rather than trying to do this in-house. Another example of an OCIO business is Hirtle Callagahan.
Today, Cerulli Associates, the Boston-headquartered analytics firm, said non-profit organizations seek OCIOs at a “higher-than-historical rate”, such as because they lack access to high-quality private investments and want a “strong environmental, social, and governance policy”. Cerulli said it expects to see OCIO platforms with strong ESG positioning in their private asset classes at an advantage when winning new clients in the non-profit space. In its report, Cerulli said 79 per cent and 69 per cent of OCIO providers expect the demand for private equity and other private investments, respectively, to increase.
Dimitruk doesn't think that investors can rely on listed equities to drive adequate returns, touching on the secular shift toward private market investments that has, with some interruptions, been going on since the dotcom boom of the late 1990s.
“Our view is that conventional public equities are highly unlikely to provide the returns one is looking for to support institutional or family objectives.”
The world of rising interest rates has changed the investment equation, he said.
“We do a lot in private equity, private credit and private real estate. The primary source of excess return in investing compound over time in terms of returns. However private markets are both complex and challenging to access. Over the past 40 years, central banks actively suppressed risk, maintaining an essentially zero cost of capital. Life in the investment world was easier, but this benign era where risk was masked is now at an end,” he said.
“As interest rates have gone up, the discounted future value of earnings has gone down. This had a negative impact on the valuation, particularly of high-growth firms, notably tech firms, causing a massive re-rating of these businesses,” Dimitruk continued.
Inflation is top of mind
Asked what most concerns clients, Dimitruk said inflation and the path of interest rates are top of the agenda.
“The primary questions clients ask today are over the future direction of inflation and interest rates and the impact on both their investment programs and on their ability to sustain their financial objectives, notably the spending rates of philanthropic institutions such as a school,” he said.
“The rise in inflation was not a surprise given recent monetary and fiscal policy, but what no one could have foreseen was how much inflation would be further stimulated by the Russian invasion of Ukraine and the Chinese Covid lockdowns,” he continued.
Founded in 2001, Partners Capital has offices in Boston, New York, London, Singapore, Hong Kong, San Francisco and Paris.
Families and endowment mind-set
Dimitruk referred to one family client that represents seven generations starting in Europe, they are now in the US as well, with more than 250 members. This can create a higher level of complexity than with first generation wealth.
Waiting until the senior members are no longer able to manage the family wealth themselves and failing to address the “endowment” aspect of such wealth, can put a family’s goals at risk, such as the ability to support philanthropic goals over the long term, he added.
The founders and managers of investment houses, such as private equity firms, have plenty of insight into what drives returns. And that means that serving this very distinct population needs a laser-like focus on achieving results in all financial weathers.
Private is where returns are