Barriers to direct investing are sparking rising interest among family offices in partnering with external managers to source co-investment opportunities, provide due diligence support, and structure transactions, according to a survey by BNY Wealth.
The report, which included a survey of more than 280 key decision-makers from some of the world’s largest single family offices, found demand for co-investments is likely to grow. It noted not all have yet built up the familiarity or institutional experience required to identify potential investees or evaluate direct deals effectively and at pace.
Among family offices surveyed, more than two-fifths (44%) cited understaffing as a key challenge for direct investing, an 83% year-over-year rise. Nearly 40% of respondents also said, in certain geographies, direct investing opportunities among local investees are much scarcer than in the Americas.
The report also found family offices are seeking diversification in new spaces in the luxury asset class, particular in areas that can maintain value throughout market uncertainty. While a third of respondents said they currently invest in uncorrelated assets such as investments in art, jewelry, and sports teams, that percentage is set to grow, with 22% of those currently not invested in these assets noting they plan to do so within the next two years.
Among the luxury assets respondents noted they were invested in, 54% cited watches or fine jewelry, followed by collectibles such as coins and stamps (50%), art (38%), sports teams (33%), spirits such as whisky or wine (27%), and music/media rights (24%).
While private assets come with illiquidity premia, investment professionals can address these constraints by accessing customized lending facilities, noted the report. It also pointed out the art market, which is viewed as the most liquid among the collectibles categories, has experienced a 15-year bull market supported by low interest rates and a period of peak globalization. “At this stage, collectors are watching valuations and tracking their favorite artists closely to find exceptional works,” it said.
Private equity opportunities are continuing to open up in major U.S. sports leagues, as teams seek new sources of financing for capital-intensive projects such as stadium upgrades, the report added. As well, family offices are also seeking out other types of recurring revenue streams, such as media rights, ancillary property and hospitality assets, and in certain cases, attractive municipal underwriting.
Artificial intelligence also continues to drive family offices’ investment decisions, with 83% of global respondents citing it as one of their top focuses for the next five years. Among non-U.S. respondents, nearly three-quarters (73%) cited renewable energy as a top five-year theme. This represents a 49% year-over-year rise. By contrast, just half of their U.S. counterparts expressed the same sentiment, which represents a 32% year-over-year rise.
