While investing in private equity and private debt (the main constituents of private capital) creates opportunities, Mark Florman, CEO of Time Partners says the complexity of fund investing, direct investments and co-investments requires specialist advice to avoid the pitfall of over-concentration and a lack of investment diversity in private capital portfolios.
Can you describe the investment behaviour of family offices with regards to private capital?
As a specialist within the Private Markets space, specifically in the building of funds strategies for families, we have noticed that family offices are more often than not quite new to structured programmes. The traditional route has for many years been to invest in pooled vehicles providing access to private equity funds - what used to be considered as an alternative to public equity investment can now be arranged and executed through a more controlled and systematic approach. This relatively new and emergent strategy is to invest in a fund programme over time, in a controlled manner. This is a strategy that is increasingly being adopted by families as expertise in the sector develops. Our own family office has tested it over 20 years and it works very well.
“We have built our business based on being specialists in tailoring private equity fund programmes and co-investment across the world.“
Where should one seek advice prior to investing?
If you’re going to focus on either investing directly or through funds, there are two possibilities depending on the size of your allocation. If you are a relatively small investor with little experience in private markets, there are a number of private equity advisors who will have portfolios prepared for you – this is a good stepping stone to learn about how the asset class works through a more standardised product. However, if you are a larger investor or need a more bespoke programme, perhaps tailored to your industry or family interests, then you need specialist advice. Time Partners is an adviser specialising in developing such programmes as well as enabling investors to develop their own in-house expertise. We have built our business based on being specialists in tailoring private equity fund programmes and co-investment across the world.
What challenges and opportunities do you identify in private capital investments?
The challenges are many. When you enter into private capital markets, you are inundated with products and opportunities which to the uninitiated may appear quite varied but are actually highly specialised and very specific to a theme, geography or strategy. That’s where you need to be careful, you need to know the managers, their culture and strategies, and understand fully what you’re getting into. One of the mistakes we often see is to having too much concentration of risk, so I will stress here the importance of diversification. The opportunity through engaging with private markets and building a programme is to collaborate with a wide range of extremely good managers and the funds that they build, as well as to work with them occasionally on co-investment. The opportunity for some is to invest in a wide range of very interesting and exclusive funds and to achieve equity diversity in your portfolio.