RESEARCH
                     
Single-family Offices and Alternative Investments

Nov 2017

ingle-family Offices and Alternative InvestmentsWe provide findings from our survey of 157 single-family offices about their use of private equity funds, hedge funds, and direct private company investments, including recent allocation changes, future plans and differences in behavior across first generation-led family offices and those managed by second generation family members.

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Single-family offices, the ultra-private organizations that help the world’s wealthiest families oversee their financial and personal affairs, are experienced investors in private equity funds, hedge funds and direct deals.

As founding generations transition their leadership responsibility to successors, an increased appetite for wealth accumulation is emerging and helping to fuel interest in alternative investments as a means to asset growth.

Key Findings

• 87% of single-family offices surveyed allocate 10% or more of their total portfolio to alternative investments, including private equity, hedge funds and direct deals.

• Private equity funds are the most popular type of alternative investment, with about 41% of single-family offices maintaining exposure, followed closely by hedge funds (39%). About a quarter of single-family offices invest in private companies on a direct basis.

• About 90% of single-family offices maintained or increased their private equity exposure over the past year, whether through funds or direct investments. Conversely, the majority (56%) decreased their hedge fund allocations.

• Looking ahead, 66% of single-family offices plan to increase their direct investments, 47% plan to increase their private equity fund investments, and 37% plan to boost their hedge fund exposure.

• Single-family offices who have transitioned leadership to the second generation of family members tend to maintain higher allocations to alternatives than first generation family offices, with 18% of second generation single-family offices allocating over 20% of their total portfolios. In addition, they tend to make greater use of the full range of alternative investments and have a particular propensity for direct deals, with 71% having increased their direct allocations relative to last year and 82% intending to do so in the future.


iCapital’s 2015 research on single-family offices revealed strong activity and interest in the private equity (PE) asset class, with six out of ten family offices surveyed in that report investing in PE either through funds or on a direct basis. About three quarters of the single-family offices we spoke with further reported that their private equity investments had outperformed their other holdings, and as a result the majority expected to increase their allocations over the following two years.

In light of this and of the fact that alternatives have become a larger part of the investment dialogue over recent years, we conducted follow-up research on this notoriously private cohort to learn more about their interest in and experience with a broader group of alternative investments, including private equity funds, hedge funds and direct deals. In order to make meaningful comparisons, we de ned a single-family offices as:

• a separate legal entity distinct from other operating companies and businesses of the ultra-wealthy family

• an entity that serves as a primary source of investment management services either directly or through select third-party managers

• an entity that the ultra-wealthy family refers to as a "family office".

To be included in this study, the single-family offices were actively investing in private equity funds, hedge funds, direct deals or a combination thereof. "Direct deals" as used in this report covers investments in small- and mid-size privately held companies, startups, and other private assets such as intellectual property rights and royalties, but excludes private real estate investments.

In this report, we share data collected from 157 single-family offices during the second half of 2016 and the first half of 2017. Three quarters of the respondents manage $500 million or more (Exhibit 1), providing a perspective of significant wealth that warrants institutional-level investment research and exposures. While these organizations cater to the financial and lifestyle needs of ultra- wealthy families, they tend to behave more like institutions than high-net- worth investors. However, the complexities of managing multi-generational constituencies, as well as the high degree of investment autonomy that family offices enjoy, make for a unique investor profile that requires a dedicated strategy and service offering.

Single-family offices tend to behave more like institutions than high-net-worth investors, but the complexities of managing multi-generational constituencies and a high degree of investment autonomy make for a unique investor profile that requires a dedicated strategy and service offering.

Figure 1 - Assets Under Management

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IMPORANT INFORMATION:

These materials are for informational purposes only and are not intended as, and may not be relied on in any manner as legal, tax or investment advice, a recommendation, or as an offer to sell, a solicitation of an offer to purchase or a recommendation of any interest in any fund or security described herein. Any such offer or solicitation shall be made only pursuant to the final confidential offering documents which will contain information about each fund’s investment objectives and terms and conditions of an investment and may also describe certain risks and tax information related to an investment therein.

Past performance is not indicative of future results. All of the products described, including any products made available to clients of iCapital, are private placements that are sold only to qualified clients of iCapital through transactions that are exempt from registration under the Securities Act of 1933 pursuant to Rule 506(b) of Regulation D promulgated thereunder (“Private Placements”). An investment in any product issued pursuant to a Private Placement, such as the funds described, entails a high degree of risk and no assurance can be given that any alternative investment fund’s investment objectives will be achieved or that investors will receive a return of their capital. Further, such investments are not subject to the same levels of regulatory scrutiny as publicly listed investments, and as a result, investors may have access to significantly less information than they can access with respect to publicly listed investments. Prospective investors should also note that investments in the products described involve long lock-ups and do not provide investors with liquidity.

The information contained herein is subject to change and is also incomplete. This industry information and its importance is an opinion only and should not be relied upon as the only important information available. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission.

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