Pascal Rapallino (IQ-EQ): Family offices turn to private equity – and technology
Updated: Mar 11, 2021
Private funds are becoming popular vehicles for family offices, says Pascal Rapallino, group investment structuring leader at fund and corporate service provider IQ-EQ; particularly as they focus is more on private equity and venture capital investments. Technology is also playing a more important role.
What changes are currently underway within the family office sector?
The role of the family office has evolved significantly in recent years, growing both in scale and sophistication, but also the way in which they invest. One of the most notable developments is the increased emphasis on direct investment in private markets, involving the use of private funds. This may involve a family investing alone, different branches of a family investing together, or a joint initiative with other families, according to The Great Global Wealth Transfer, a report issued by IQ-EQ in collaboration with Barton Consulting and Wealth-X. Co-investing alongside private equity firms is also very common; the UBS Global Family Office Report 2020 identified private equity as family offices’ favoured asset class, with 77% investing in it – primarily via funds. The report also finds that 69% of family offices view PE as a key driver of returns, with 73% of those investing expecting it to deliver higher returns than public market investments.
“ Technology has become a major enabler for globalised wealth. It is at the heart of the most efficient family offices and is used in a myriad ways.”
Why are family offices increasing their allocation to alternative assets?
The first reason is the opportunity to obtain higher returns, especially in a period when yields from traditional investments, and especially bonds, are relatively low, a trend exacerbated by the Covid-19 pandemic. But our research last year for The Great Global Wealth Transfer report also found that a key factor is enthusiasm for private equity and venture capital investment, especially for the next generation, for which considerations are less focused on risk or return but more about excitement They also cite the appeal of interaction with portfolio businesses in terms of management and strategy – another factor driving the preference for co-investment alongside private equity firms or direct investment.
What role does technology have to play in increasing the sophistication of family offices?
Technology has become a major enabler for globalised wealth. It is at the heart of the most efficient family offices and is used in a myriad ways. One of its greatest benefits is simplification; with increasing regulation and bureaucracy to contend with, one of the most effective applications of technology within family office structures is in its ability to automate arduous repetitive processes. Family offices report that key areas in which they use technology include investment monitoring and consolidated reporting across multiple asset classes, currencies, jurisdictions and regions.