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October 23, 2016

Why private equity appeals to wealthy families

There is a growing interest in investing into private equity amongst wealth families with over $10 million, particularly those who made their wealth through running operating businesses themselves.
"We’ve noticed that private equity typically resonates very well especially among those families who generated their wealth by running operating businesses themselves," observes Martin Pelletier, Portfolio Manager and OCIO at TriVest Wealth Counsel Ltd, in the Financial Post, 27th September, 2016.
Pelletier goes on to quote from the most recent UBS Global Family Office Report: "We are not alone in this observation as the 2016 Campden Wealth-UBS Global Family Office Report highlights that the average family office has a 22% portfolio allocation to private equity. Approximately two-thirds of this is done through direct and co-investing rather than private equity funds. This makes some sense as it provides more control over the investment process and families can better utilize their previous hands-on business experience." (Read the whole article here.)
Wealthy families who have run their own operating companies have a comfort in understanding the due diligence required to get a grasp of the business and why capital needs to be tied up for a long time period. They also understand why there is also a higher risk premium for illiquid exposure expected to generate higher returns over the long run.
One caveat for those interested in private equity is that access to quality private equity deals is the critical requirement to achieving the returns to cover the higher fees.
Jacoline Loewen, UBS Bank (Canada), author of Money Magnet: How to Attract Investors to Your Business, (Wiley). You can follow Jacoline on Twitter @jacolineloewen
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