Alain Roussel, Head of the Private Institutional Clients Coverage team for EMEA at Nomura, shares his insights on the attractiveness of PE/RE investments and why family offices are increasingly opting for this asset class.
Why are UHNWI increasingly interested in PE/RE?
The risk return profile of traditional asset classes hasn’t been as attractive as that of PE/RE, given that the majority of family offices have the ability to invest and hold throughout market cycles. This puts them in a unique position when it comes to investing in PE/RE and gives them a competitive edge. PE/RE is an asset class which its owners naturally understand and can discuss within their inner circle, unlike traditional financial products. The private ownership of PE/RE enables family offices to invest discreetly; many family offices see such investments as an opportunity to create generational wealth. However, these investments often go beyond pure economic returns, providing the family with the ability to influence society, communities and, ultimately, the family’s legacy.
“Family offices have become less passive and more professional and sophisticated, recruiting industry experts to work directly on the family’s behalf”
How are family offices adapting to this new trend?
Historically, PE/RE has been a passive component of a family office’s portfolio. Accumulating property, from primary residences to holiday homes and undeveloped land, has always been a staple wealth creation investment. In the past, PE has been a part of the portfolios of many family offices which have been trying to replicate the success of their own primary business. As a consequence, PE/RE portfolios were built up haphazardly with many positions accumulated over time. However, in the wake of the global financial crisis, family offices have become less passive and more professional and sophisticated, recruiting industry experts to work directly on the family’s behalf. What was once an unsystematic approach to investing in PE/RE has transitioned to strategies which are institutionally driven and highly competitive. Family offices have changed from investing in PE/RE funds run by top-tier managers to having in-house teams which invest directly in assets, thereby competing with the same asset managers which these family offices once used.
What trends do you see in the next five years within the world of family offices?
Direct investments in PE/RE will continue to grow, while their peers form club deals. Family offices can leverage their networks to muster the expertise and the fire power to close deals. Their pool of capital is more flexible and patient than other institutional investors who are often benchmarked and earn fees on invested capital. As a result, family offices will be seen as credible, reliable and preferred partners which can offer access to deals before traditional equity and debt investors. They will continue to invest across the capital structure, focusing on the best risk return opportunities. It will become more common to see them acting as lenders of record, further disintermediating traditional lenders. Lastly, while investment returns will remain a top priority, other factors including ESG compliance will influence many family offices’ final investment decisions.