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A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide to the high-net-worth investor and consumer. Sign up to receive future releases straight to your inbox.
The number of family offices in the world has tripled since 2019, starting a new race among private equity firms, hedge funds and venture capital firms to attract their investment.
According to a new report from Preqin, the number of family offices – the private investment arms of wealthy families – topped 4,500 worldwide last year. North America has the largest share of family offices, with 1,682. More than half of all family office assets in the world are located in North America.
Experts say family offices now manage $6 trillion or more and their ranks are growing. There are more than 2,600 billionaires in the world, almost all of whom require a family office. And the number of people in the world worth $100 million or more — the standard threshold for a family office — has grown to more than 90,000, according to Wealth-X, an Altrata company. In other words, there is more room to run.
The boom in family offices has drawn the attention of private equity firms and other alternative managers looking to raise capital. Blackstone, KKR and Carlyle are all expanding their teams, sponsoring events and building products specifically for family offices.
“Larger private equity managers are trying to compete there by devoting resources and time,” said Rachel Dabora, research intelligence analyst at Preqin. “Ultra high net worth investors and family offices are really on their radar.”
On the surface, family offices are dream clients for alternatives. For years, family offices sought basic wealth preservation with traditional stock and bond portfolios. They now look more like institutional investors, seeking higher long-term returns with private equity, venture capital, hedge funds, infrastructure and real estate. Family offices have the highest allocation to hedge funds of any type of institutional investor, according to Preqin.
Admittedly, the last couple of years have been tough for private equity, venture capital and many hedge fund returns.
More than half of family offices surveyed by Preqin said they have been disappointed with their venture capital returns, while a third have been disappointed with private equity. However, they remain optimistic for this year and beyond, with the majority saying that private equity and venture capital will fare better over the next 12 months.
Private equity firms are aggressively chasing the family office market. Blackstone, which has served wealthy individuals for decades through its Private Wealth Solutions business, is strengthening its Private Capital Group, which serves family offices, billionaires and the largest, most sophisticated individual investors. That group has doubled to 25 people in recent years and is likely to continue growing, according to Craig Russell, global head of Blackstone’s Private Capital Group.
“We view this as a substantial and growing opportunity for Blackstone,” Russell said.
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