High-net-worth firms plan to increase their allocations to direct investments and co-investments over the next two years, new research from global research and consulting firm Cerulli Associates says.
As the private equity market has evolved, many high-net-worth (HNW) practices have moved toward direct deals that give investors the opportunity to invest directly in a portfolio company, a release from Cerulli says. The potential benefits include higher returns and increased control and oversight.
More than two-thirds (67%) of HNW practices expect to increase their allocations to direct investments or co-investments over the next two years, while only 22% plan to increase their use of third-party-managed private equity funds, the research found.
Multi-family offices, many of which were founded by successful executives and entrepreneurs who are comfortable making strategic investments in private companies, are leading the trend, the report says.
Direct investing allows family offices to retain greater control in the investment process and offers flexibility in negotiating terms with the underlying company, which can lead to lower fees and better investment terms, the release says.
Many family offices are seeing demand for these types of investments from younger and entrepreneurial-spirited clients, who want to be more involved in managing their families’ wealth; in some instances, these clients have become a primary source of deal flow for firms.