Family offices becoming more effective PE investors - AVCJ Forum

"They used to be very opportunistic, in the sense that they didn't have a strategy. So when we said that family offices are flexible, maybe that's another way of saying we don't really know what these guys want," said Tanguy Lesselin, co-founder and CEO of investment platform Finquest. "I think that's changing, and there are more and more investment professionals within family offices looking at targeted opportunities and developing investment theses."

In the case of North-East Private Equity Asia, which manages Asian PE investments for the founders of the jewelry brand Pandora, the office has taken steps to professionalize its operations. Investment capital is separated from the funds for the use of individual family members, rather than having it all mixed together in the same pool as some other offices do. In addition, the family has clear goals and rewards for the investment capital.

"I think a very common complaint that friends of mine have working for family offices is, what do I get out of it? I do some great deals, the guy says I'll give you something when it all comes good, and then when it comes to eight years from now you don't get paid," said Sam Robinson, managing partner of North-East. "With me it's very clear. There's a ring-fenced vehicle, and if I achieve a certain level of performance then I know what I get."

The increased comfort with PE has led family offices to pursue more investment opportunities beyond LP interests in funds. Lesselin noted that his platform has seen growing interest in direct and co-investment opportunities across a range of asset classes, for both minority and majority stakes. He attributes this rise to increased confidence among investment professionals at family offices that they can manage investments themselves.

However, many family offices continue to show reluctance about the value of direct and co-investments that fall outside their areas of expertise. Yag Patel, chief investment officer of Golden Alpha, the family office of an Asia-based shipping family, said that when he began asking to examine the co-investment portfolios of GPs that were proposing partnerships, he found very troubling weaknesses.

"It's case-specific by the GP, but if you look at it there's some massive selection bias against good deals," said Patel. "So even net of fees, I would say for 80% of the GPs out there, co-investment portfolios actually underperform their funds." Patel added that while his office does pursue co-investments with GPs that it trusts, or in areas that make use of the family's shipping expertise, it now tends to stay away from others.

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