Family offices increase exposure to alternative investments

Preqin data indicates a significant shift in family office investment strategies, with the number of family offices allocating to private markets surging 524% since 2016, rising from 651 to 4,067. This substantial increase underscores a growing institutionalization of family office capital and a heightened appetite for alternative investments, signaling increased competition and potential valuation impacts within the private capital landscape.

Analysis

A significant structural shift is underway in capital allocation, as evidenced by a 524% surge in the number of family offices investing in private markets since 2016, with the count rising from 651 to 4,067 according to Preqin data. This massive flow of capital signifies a growing institutionalization of family offices, which are increasingly seeking diversification and potentially higher returns in alternative investments beyond traditional public markets. The primary implication of this trend is a material increase in competition within the private capital landscape. This influx of sophisticated capital chasing a finite number of deals could exert upward pressure on asset valuations, potentially compressing future returns for all market participants and demanding greater discipline from fund managers.

Key Decisions for Investors

• Managers of private funds should anticipate a more competitive deal-sourcing environment and exercise stringent valuation discipline, as the surge in family office capital is likely to inflate asset prices.
• Limited Partners considering or holding private market allocations should intensify their due diligence on a General Partner's ability to source proprietary deals and navigate a higher-valuation environment.
• Investors should monitor publicly-listed alternative asset managers, as they may benefit from increased management fees and capital inflows from this expanding client segment.